If you have received an IRS CP2000 letter, do not panic. This letter means the IRS thinks you owe them money and you have 30 days to reply- so do not procrastinate. You will want to contact a tax professional and use ZenLedger to produce your 8949, Schedule D, and full audit report.
The CP2000 letter is triggered by a mismatch between what you reported on your 1040 to the IRS and what has been reported to them by exchanges. Unfortunately, 1099-K’s are being sent from crypto exchanges to the IRS and these forms are completely useless for calculating capital gains/loss and hence, tax liability. A Form 1099-K reports the total proceeds into the account but provides no information on cost basis or actual gains.
There is no way for the IRS to form a coherent picture of your US-based exchange trades (like Coinbase, Bittrex), Foreign-based exchange trades (like Binance, Kucoin), and your wallets. ZenLedger can help you make a strong case in your favor because we will produce comprehensive reports that tie everything together and is easy for an accountant, tax attorney, or IRS investigator to follow.
Nevertheless, the IRS is sending you a 30-day letter because of flawed information. You still need to respond to this letter before the deadline or else you are going to be found legally deficient. The CP2000 letter is not a bill. It is not proof that you owe anything. But if you do not respond within 30 days you will receive a Statutory Notice of Deficiency from the IRS. That is a bill. Once these deadlines pass, it becomes much more difficult to contest the bill in the future.
So the first step is to decide if you want to contest the IRS assertions or not. On-Page 3 of the letter, the IRS will show you where your filing and their determination differ. You can decide here if you think they are wrong and you want to submit a rebuttal. On page 7, you can disagree and send in a rebuttal.
We recommend you use ZenLedger to create your tax reports and forms that you can send in as a comprehensive rebuttal. Specifically, you will need to show the IRS how the information reported to them is incorrect - or is not the full picture. ZenLedger enables you to import cryptocurrency transactions, calculate gains and income, and auto-fill tax forms like 8949 & Schedule D.
In order to be compliant and avoid further actions from IRS, follow these easy steps:
- Sign up for free to create an account with ZenLedger.
- Import your transactions. It’s very easy – you can do it by selecting your exchange from the list, uploading CSV files, or using an API tool to auto-download your data.
- Get your tax forms.
- Respond to the IRS. If you are already working with a CPA, you will be able to share your tax reports with them directly from the tool. Or, we also offer a fully prepared tax plan where a CPA/Tax Professional will handle everything for you!
More resources on how the IRS is expanding its efforts involving cryptocurrency and how to be compliant:
- IRS letters 6174, 6173 for Crypto Taxes and Accounting
- New Crypto Rules Could Impact the Market
- IRS Guidance on the tax treatment of transactions using virtual currencies
- The notice from the IRS website regarding letters 6174, 6174-A and 6173
If you have any questions about how to complete your cryptocurrency taxes and how ZenLedger can help, please send them to firstname.lastname@example.org
By Pat Larsen
Co-Founder / CEO of ZenLedger