Have You Underreported Your Cryptocurrency Taxes to the IRS?Articles/News, Hot Topics
Posted on November 30, 2020 | Share
Have you received a CP2000 tax notice from the Internal Revenue Service (IRS) pertaining to your income tax liability for cryptocurrency trades or investment activity? If so, you are not alone. The IRS is sending these notices to U.S. taxpayers who are suspected of underpaying their federal income tax liability, and there have been reports of large volumes of these notices being issues in recent weeks. Our New Jersey tax lawyers have been following these developments closely and are available to represent individuals and businesses that need help dealing with the IRS.
The IRS is Warning Cryptocurrency Traders and Investors to Review Their Prior Years’ Tax Filings
Essentially, a CP2000 tax notice serves as a warning to review your prior years’ tax filings. As the IRS explains, “The CP2000 isn't a bill, it's a proposal to adjust your income, payments, credits, and/or deductions. The adjustment may result in additional tax owed or a refund of taxes paid.” While you do not have to pay the proposed additional tax amount stated on your CP2000 tax notice, you do have to respond to the notice; and, if you dispute the IRS’s proposed adjustment, you must address this proactively in order to avoid receiving a Statutory Notice of Deficiency and potentially facing a federal tax fraud audit or investigation.
How Does the IRS Calculate Underpayment of Cryptocurrency-Related Income Tax Liability?
For cryptocurrency traders and investors, the decision to issue a CP2000 tax notice is based upon the identification of a “potential discrepancy” between the information contained in the individual’s annual income tax returns and the information submitted to the IRS by the individual’s cryptocurrency exchange. Cryptocurrency exchanges have an obligation to report transactions above certain thresholds for individual taxpayers, and they typically do so using either Form 1099-K or Form 1099-MISC.
If the income you report on your tax returns does not match the information contained in your Form 1099-K or Form 1099-MISC, this can trigger the issuance of a CP2000 tax notice. While a discrepancy might mean that you have incorrectly calculated what you owe, it could also mean that the information contained in your Form 1099-K or Form 1099-MISC is not an accurate reflection of your tax liability.
If I Haven’t Received a CP2000 Tax Notice Pertaining to Cryptocurrency Taxes, Am I Safe?
Importantly, even if you have not received a CP2000 tax notice, this does not necessarily mean that the IRS has accepted your returns as an accurate reflection of your cryptocurrency-related tax liability. A CP2000 notice could be forthcoming, or you could be at risk in the event that the IRS decides to conduct an audit or investigation. As a result, if you have any concerns about whether you have accurately calculated your cryptocurrency-related federal income tax, you should consult with an attorney promptly.
Contact New Jersey Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group
Do you have cryptocurrency-related tax questions? If so, we invite you to schedule an initial consultation with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group. To request an appointment in person or over the phone, please call 201-355-8202, email email@example.com or contact us online today.