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.
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.