The IRS continues to be aggressive with their enforcement of ensuring taxpayers have reported all activity with their cryptocurrencies. Just recently, it is being reported that taxpayers are now receiving CP2000 notices for underreporting the proceeds received from the sale and exchange of cryptocurrency.
CP2000 notices are very common in the traditional investment world of selling stocks and bonds. Financial institutions have been required to report all trading activity to both the taxpayer and IRS for years. The typical notices disclose a discrepancy of how much was reported to the IRS versus what was actually reported on the taxpayer’s tax return. When the notice is sent, the IRS makes no effort to calculate cost basis and also assumes all transactions are short-term and not subject to favorable long-term capital gain rates. What makes the notices burdensome is the notice is essentially a tax bill. The notice comes with an amount due and the taxpayer has the burden of proof to show the IRS why their calculation is incorrect.
Assuming taxpayers have good records, the CP-2000 notice is relatively easy to rectify. However, in the cryptocurrency world, keeping not only accurate records but records that are still accessible can be difficult. Additionally, taxpayers may not understand that moving from one cryptocurrency to another may trigger taxable income even though the taxpayer has not gone back to U.S. dollars.
Should you receive a CP2000 notice regarding cryptocurrency, we highly advise you to contact Porte Brown’s Cryptocurrency leader, Gary Kemnitz, CPA, CFE, CVA, at 847-956-1040.
Get in touch today and find out how we can help you meet your objectives.