US: IRS is sending additional CP 2000 notice letters to cryptocurrency investors

Editorial & Review Staff

Editorial & Review Staff

Editorial & Review Staff articles have been checked and revised.

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The U.S. Internal Revenue Service (IRS) has again sent out compliance letters to investors of virtual currencies such as Bitcoin, whose tax return information did not match data reported to the IRS by third parties such as employers and banks.

The CP 2000 notice letters will give individual investors detailed information about the mismatch the IRS identified and provide steps to be taken to resolve the issues. Phone numbers of IRS telephone assistors are also provided in the letter for the investors to interact with them to resolve any discrepancies.

The IRS reminds taxpayers this letter is not a formal audit notification but a letter to see if the taxpayer agrees or disagrees with the proposed tax changes or mismatches. Taxpayers are expected to respond to the CP2000 letter, usually within 30 days from the date printed on the letter.

The next step for the IRS is to send another letter, called an IRS Notice CP3219A Statutory Notice of Deficiency, if the taxpayer doesn’t respond to the initial notice or if the IRS can’t accept the additional information provided.

The IRS CP3219A notice also tells taxpayers about their right to challenge the decision in Tax Court if they choose to do so.

Earlier in July, the IRS had sent letters to crypto investors advising them to report and pay income taxes or file amended returns for transaction not reported properly. These were “educational letters” to more than 10,000 taxpayers to encourage them to make the filing or amend their filing.

The IRS warned taxpayers, who do not properly report virtual currency transactions, that they will be liable for tax, penalties and interest and in some cases they could be subject to criminal prosecution.

IRS treats virtual currency as a commodity or property, and not as real currency, for federal tax purposes. Therefore, virtual currencies are also subject to capital gains laws.

The current guidance for taxpayers is to file each and every transaction executed using a cryptocurrency. And the IRS has increased enforcement activities against taxpayers who “misreport” their cryptocurrency transactions.

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