For the second 12 months in a row, the Inner Income Service (IRS) is warning cryptocurrency traders they underreported their holdings. However it could be one other false alarm.
“Dozens of people” lately acquired notices that they owe taxes on good points from crypto holdings that they didn’t report when submitting in 2018, in keeping with a weblog publish revealed Monday by tax software program supplier CryptoTrader.tax.
Shehan Chandrasekera, head of tax technique at CoinTracker, stated he’d additionally heard of crypto traders receiving these letters this 12 months.
The shape CP2000 letters state how a lot the IRS believes the customers owe and supply due dates for fee. Nonetheless, the customers doubtless by no means realized these good points, and don’t really owe these funds, CryptoTrader.tax stated.
Comparable letters had been despatched to crypto change customers final 12 months. On the time, Justin Woodward, the co-founder of TaxBit, one other software program vendor, informed CoinDesk that individuals acquired letters as a result of their change reported transactions to the IRS utilizing type 1099-Okay. This IRS type reveals all transactions as producing income, even when some transactions really resulted in a loss for the consumer.
Consequently, an change may report a dramatically inflated tax burden for the consumer. The letters despatched in 2019 had been for the 2017 tax 12 months.
The identical problem seems to be occurring this 12 months, in keeping with CryptoTrader’s weblog publish.
“These CP2000 cryptocurrency-related tax mishaps all stem from the truth that Coinbase and different exchanges use Kind 1099Okay to report crypto proceeds to the IRS. This can be a downside,” the weblog publish stated.
In keeping with a photograph on CryptoTrader’s weblog publish, a minimum of one Coinbase consumer is unquestionably affected. It’s unclear whether or not customers from different exchanges are additionally receiving these letters.
Customers who obtain certainly one of these varieties ought to calculate their precise good points and losses, and report these to the IRS, the publish stated.
Exchanges might forestall this problem by sending 1099-B studies to the IRS, which precisely mark good points and losses, reasonably than the merchant-focused 1099-Okay varieties, TaxBit’s different co-founder Austin Woodward informed CoinDesk in March.
On the time, he stated that “there was by no means any clear IRS steerage that [the 1099-K] was the proper type.”
Spokespersons for the IRS and Coinbase didn’t instantly return requests for remark.