IRS Sends Warning Notices to Crypto Investors

The Internal Revenue Service in the United States (IRS) is reportedly sending warning letters to crypto holders again and claiming that they owe taxes on under-reported gains of crypto holdings. Similar letters were sent to cryptocurrency users last year.

According to a blog post, published by crypto tax service provider, CryptoTrader.tax, the company received several queries related to CP2000 notices. An IRS issue CP2000 notice is sent to an individual if the agency thinks that there is a difference between the income information IRS has on file and the information a person has reported on tax returns.

The tax experts said that the IRS is mistaken and added that the main problem is that coinbase and other crypto exchanges use form 1099K to report user data instead of 1099 or 1099B. In the last couple of days, dozens of individuals received CP2000 from the IRS.

Commenting on the matter, David Kemmerer, CEO of CryptoTrader.Tax, said: “1099-K was never meant to be a form for cryptocurrency exchanges to use to report income. It was designed to report earnings from platforms where you are being paid directly by third party merchants like Uber, Lyft, and Etsy. The form does not make sense in the context of cryptocurrency exchanges, and yet, many prominent exchanges like Coinbase have decided it is 1099 they are going to use to report customer earnings information.”

Form Issue

According to Kemmerer, the real issue with the 1099K form is that the form does not represent any gains or losses, it shows the gross proceeds including all the transactions related to an individual. “This is the problem with this form. Instead of reporting gains and losses (which are the real numbers you need for tax reporting), 1099-K sums up all of your trades and sells that happened within your Coinbase account and reports that number to the IRS. This makes it look like you had huge amounts of unreported income on your tax return,” he added.