January 13, 2020

Responding to a Cryptocurrency IRS CP2000 Letter

Justin Woodward, Tax Attorney

Justin Woodward
Cryptocurrency Tax Attorney

Thousands of cryptocurrency traders have been receiving CP2000 letters from the IRS over the past few months. CP2000 notices have been in the tax compliance world for a while and are not specific to cryptocurrency. CP2000 notices are often generated when there is a matching issue between what is reported to the IRS by an exchange/broker and a taxpayer.

In the cryptocurrency realm, TaxBit has mainly seen its users receive a CP2000 letter because a cryptocurrency exchange filed a 1099-K on the taxpayer’s behalf saying the taxpayer generated income on their platform. The problem arises in that 1099-K’s do not account for cost basis in capital assets and therefore most often state that the taxpayer generated income when they were merely traded capital assets. If you received a 1099-K from an exchange stating that you generated income on their platform then it is likely that you will receive a CP2000 letter.

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TaxBit has a perfect record of explaining to the IRS that cryptocurrency is not income, but rather a capital asset that has cost basis associated with it. In many instances, TaxBit has been able to help users receive money back from the IRS (if a user lost money on their crypto trades during the given year under examination).

CP2000 letters require a taxpayer to respond to the letter within 30 days. If you received a CP2000 letter from the IRS the TaxBit’s tax professionals stand ready to help. The process is as simple as creating a TaxBit account, selecting the Plus or Pro plan (both plans include drafting a CP2000 response letter), and then sending a photo of your CP2000 letter to our in-app chat. Our tax experts will handle the process from there and will be in touch with you every step along the way.

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