IRS sends CP2000 notices to Coinbase users over crypto tax debts

The Internal Revenue Service (IRS) has sent letters to cryptocurrency holders demanding payment of substantial tax debts to the state, CryptoTrader.Tax said.

We have received dozens of support chats this past weekend from people who received CP2000 Notices from the IRS claiming they owed hundreds of thousands in taxes from non-reported crypto income.https://t.co/aowsyEFe3o

— CryptoTrader.Tax (@CryptoTraderTax) November 23, 2020

These notices are CP2000 notices — issued when the IRS identifies discrepancies between information reported by taxpayers and its own records. Some Coinbase users reported receiving such letters.

One CryptoTrader.Tax client said the IRS charged him with underreporting income for 2018 and demanded an additional $127,000 in taxes and penalties. The agency contends that he did not include his cryptocurrency investments in his tax return.

The firm said in a statement that over the past two days, dozens of people have contacted them who received the same notice from the agency.

The company says the IRS is mistaken, and the issue stems from Coinbase’s reporting methods and those of other platforms. They use Form 1099-K instead of 1099 or 1099-B.

“1099-K is not intended for cryptocurrency exchanges. It is designed for marketplaces where payments are accepted directly from third-party merchants, for example Uber, Lyft or Etsy,” said CryptoTrader.Tax chief David Kammerer.

This is not the first time cryptocurrency traders have received notices from the IRS. In July 2019 the agency asked for income from digital asset trading, and a month later for the exact sums of unpaid funds.

In Coinbase’s first transparency report, reported data requests from the IRS to identify discrepancies with its information.

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