The IRS (Internal Revenue Service) has again been sending CP2000 letters to virtual currency investors as part of the agency’s ongoing efforts to collect revenue from cryptocurrency taxes.
The CP2000 letter is not just for cryptocurrency traders; anyone with a discrepancy on their federal tax returns could receive the notice. But, if you received a CP2000 notice about cryptocurrency, it’s because the IRS has information about your trading activity, and this information doesn’t match what you’ve reported on your tax return.
In this article, we'll discuss everything you need to know about how to respond to IRS notice CP2000 and also how to prevent future underreporting and resulting penalties.
What Is A CP2000 IRS Notice?
When your tax return doesn’t match the income information the IRS has (like Forms W-2 and 1099), the IRS sends a notice known as a CP2000 notice. It is also called an underreported inquiry. This notice basically proposes taxes, and possibly penalties, you might owe for missing income on your return.
How To Respond To IRS Notice CP2000?
If you received a CP2000 IRS letter and agree with the amount, and you want to pay the debt and be done with it, then fill out the response form and remit it with a check. You’re done.
You can also apply for a compensation installment agreement request to pay your balance if you can’t afford to pay in full.
What Happens Next?
Once you’ve reported to the IRS, they'll either agree or disagree with it. Call the IRS around eight weeks after responding to find out. The IRS will correct your tax returns if your CP2000 IRS response is accepted. If this means that you owe more, then you’ll be responsible for either paying the amount in full or agree to pay compensation installments.
You may also want to review past years’ tax returns to determine if the same mistake has been made before. File an amended return for these scenarios to avoid paying an additional 20% penalty for inaccuracy.
How To Prevent Underreporting?
For recent returns:
- Analyze your information statements to determine whether you made the same error in other years.
- If necessary, you can file an amended return on these years to avoid the additional 20% accuracy penalty.
For future returns:
- Gather all your information before filing.
- Request your information statements from the IRS (called wage and income transcripts).
However, the IRS may not be correct. For cryptocurrency investors, in particular, CP2000 IRS letters can be notoriously inaccurate. If you received a letter, you have 30 days to respond with your CP2000 response letter- so do not procrastinate. The worst thing you can do is ignore the notice; the IRS can, and eventually will take extreme collection measures like filing a lien on your property or even levying your bank account.
What Should I Do If I Don’t Agree With The Amount On My CP2000 IRS Crypto Letter?
If you disagree with the amount, be sure to hang onto the letter and contact a cryptocurrency tax lawyer right away. The good news is we've partnered with Gordon Law Group, experts in cryptocurrency taxation and legal structures, on our tax professional prepared plan option. Gordon Law Group will get right to work responding to the IRS and creating all supporting documentation by the deadline stated on your notice. Check out Andrew Gordon, President of Gordon Law Group, sharing a success story on fighting a $400,000 crypto tax bill in this short video.
Our partnership with Gordon Law Group means that they will not only handle the CP2000 letters but will also complete all of your tax forms including 1040 and all schedules. Please get in touch with us at email@example.com with any questions about CP2000 letters or our tax professional prepared plan. We are here to help you save money on your Crypto Taxes!