CP2000 audit letters based on Form 1099-K
We’ve seen a flurry of customers coming to TaxBit for help with CP2000 letters based on Form 1099-K’s issued by exchanges during the 2018 tax year. The Form 1099-K reports a user’s total aggregate volume of payment transactions and does not take into account cost basis, as such does not accurately represent what you might owe in taxes. Form 1099-K was not intended for digital asset transactions and many exchanges have engaged TaxBit to migrate to the correct 1099-B tax forms.
If you received a Form 1099-K from a cryptocurrency exchange, we feel your pain and are here to help! Fortunately, TaxBit’s team of experts has worked with thousands of users to accurately reflect their cost basis, respond to and resolve these IRS audit letters. When taxpayers have engaged TaxBit in a timely manner, we have a 100% resolution rate with the IRS relating to Form 1099-K’s issued by exchanges.
2018 Tax Year Currently Under IRS Review
The IRS audits on a two-year lag, meaning they are currently reviewing the 2018 tax year. Fortunately, most cryptocurrency exchanges stopped issuing Form 1099-K in 2018 or 2019, meaning that these letters will not persist in perpetuity. For the 2020 tax year, we don’t anticipate any exchanges to issue the incorrect Form 1099-K’s, as Coinbase, along with many other exchanges, announced ceasing the issuance of this form.
The recent wave of cryptocurrency audits based on Form 1099-K’s issued during the 2018 tax year began early November 2020 resulting in taxpayers coming to TaxBit for assistance. We have worked with hundreds of customers over the past month to resolve the inflated amounts that were reported to the IRS. We have seen CP2000 letters relating to at least three different popular exchanges in the past few weeks and expect the number of taxpayers seeking assistance to only increase.
If you received a CP2000 letter, don’t panic, reach out to the TaxBit support team via our live chat. Our team of industry-leading experts will help you quickly and easily resolve the dispute while working to ensure you don’t pay more in taxes than you’re legally obligated. Most importantly, DO NOT ignore a CP2000 letter, make sure to take into consideration the deadlines that are clearly listed on the letter. Failure to respond to a CP2000 can result in a default judgement.
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