IRS Sends Second Round of Crypto Tax Letters to Investors

The IRS is sending out another round of letters to cryptocurrency investors – this time telling them that their tax returns do not match records given by crypto exchanges.

April 15th may be a few months in the rearview mirror, but that does not mean that the Internal Revenue Service (IRS) is lying dormant. The world’s largest collection agency has long considered virtual currencies to be property, which means an investor has to pay taxes on any profits realized from trading them.

A few weeks ago, the IRS sent out letters to thousands of crypto investors, but new letters are now being sent that are far more pointed.

You’ve Got Mail

The new letter being sent by the Internal Revenue Service, called a CP2000 notice, states that the taxpayer’s federal tax returns do not match with the information handed over by cryptocurrency exchanges. What is interesting is that the letters also state that any error made may be the fault of the appropriate exchange and not necessarily the taxpayer.

The official website of the IRS has a published new page that provides further details on what the new letters represent. The website states:

The income or payment information we have on file doesn’t match the information you reported on your tax return. This discrepancy may cause an increase or decrease in your tax, or may not change it at all.

The website lays out what a taxpayer who received one of the new cryptocurrency letters needs to do:

  • 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.

Second Volley of Crypto Letters

This new letter follows on the heels of a previous wave of crypto tax letters that were sent out a few weeks ago. The previous letters came in three different forms, according to Jim Buttonow, a CPA and tax blogger on IRSMind, and these three different forms were:

  • Letter 6174: This is a “soft notice” that the IRS believes the taxpayer might not have reported their crypto transactions. No response is required by the taxpayer (other than correcting any errors and filing an amended tax return if warranted) and the IRS will most likely not follow up on this type of notice.
  • Letter 6174-A: Similar to Letter 6174, this is a “not so soft notice” alerts the taxpayer to “potential misreporting” of crypto transactions and that the IRS “may follow-up with future enforcement action.” Like the 6174, no response is required by the taxpayer.
  • Letter 6173: This “hard notice” from the IRS alleges noncompliance by the taxpayer in reporting crypto transactions. A response to this letter is required and the IRS will most likely follow up to determine whether or not the taxpayer is in compliance.

A source with the IRS told Bloomberg that the new letters will be sent to any taxpayer any time a discrepancy is noted between the 1099-B forms given by crypto exchanges and what the taxpayer notes on their income tax forms. The source added that such letters are normally sent out one to two years after a return has been filed.

Timothy Speiss of EisnerAmper LLP told Bloomberg that the current wave of letters is “unusual because they are targeting a class of investors.” He added:

The first volume of letters I call ‘warning’ letters. Now it’s the IRS saying, we’ve got the records.

One fact can be taken from these letters being sent by the IRS, which is the tax agency is serious about ferreting out if taxpayers are accurately reporting their profits (or losses) from investing in cryptocurrencies.

Originally published on BitcoinerX

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Bitcoin Mafia
Bitcoin Mafia

My real name is Cynthia Turcotte. I am the CEO & Co-Founder @ International editor @ Crypto enthusiast, writer, SEO expert, WordPress developer. Tabletop paper-and-dice RPG gamer, sci-fi fan and movie buff.

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