Throughout July and August, the Internal Revenue Service sent letters to more than 10,000 cryptocurrency traders to alert them that their crypto taxes could be incorrectly filed. Now, the IRS has sent out a batch of CP2000 notices to inform cryptocurrency holders that the information they received from virtual currency exchanges doesn't match their tax returns.
What Should You Do If You Got A Letter?
If you received any of these letters from the IRS, take it seriously but don’t panic. The first thing you need to do is make sure the letter you received is real. Almost as soon as the IRS announced it would be sending letters, scammers started posting their own. To make sure your letter is real, check the logo and address. If you’re in doubt, call the IRS to verify your letter is real.
After you know that your letter is real, it’s important to pay attention to which letter you received. If you got Letter 6173, titled "Reporting Virtual Currency Transactions," you’re required to report all crypto transactions between the years of 2013 to 2017 within 30 days from the date listed on the letter. Letters 6174 and 6174-A don't have a deadline, but they still need to be taken seriously.
Unlike the previous batch, a CP2000 notice isn't being sent to advise you that you may have filed incorrectly. This time, the message is clear – your records don't match the information the government has been given. And while this letter acknowledges that trading exchanges may have made the errors, and not traders themselves, it's another sign that the IRS is increasing its focus on the world of cryptocurrency.
So, what should you do if you received such a letter? The worst thing you could do is ignore it entirely. But what steps can you take to protect yourself? On the IRS website, the agency provides this guidance:
- “Read your notice carefully. It explains the information we received and how it affects your tax return.
- Complete the notice Response form whether you agree or disagree with the notice. The response form explains what actions to take. (Your specific notice may not have a Response form. In that case, the notice will have instructions on what to do).
- If you agree with our notice, follow the instructions to sign the Response form and return it to us in the envelope provided. We require both spouses' signatures if you filed married filing jointly.
- Contact the business or person reporting the information, if the information they provided to us is wrong. Ask them to send you a corrected statement, then send us a copy.”
Remember, a CP2000 notice isn’t a bill. Instead, this letter contains proposed changes to your prior tax returns. However, if you don’t respond before the due date, the IRS will send you a Notice of Deficiency and then a final bill. So, while you don’t need to panic, you do need to take it seriously.
Cryptocurrency accounting can be confusing, and the government is still working to establish clear guidelines on how to record your transactions on your taxes. Official rules have been lacking, which is one of the reasons so many traders are receiving these letters to begin with. Many cryptocurrency investors and their crypto CPAs have had to interpret the current rules the best that they could to make sure the proper amount of taxes were paid.
At Crypto Tax Prep by Happy Tax, our tax pros have the training and experience to review your crypto returns and help you get them up to date and in compliance. We're continually adding new classes and updating our lessons, so our crypto tax CPAs have the latest knowledge and stay on the cutting edge of the industry.
Do you need help checking your past returns for errors? That's what we're here for. If you've used our service before, contact your tax pro to find out what steps to take next. New to Crypto Tax Prep? Great! All you need to do it select a crypto tax package, and we'll walk you through the rest. But remember, depending on the letter you received, you don't have time to waste. Contact us today, and let's get started.