The IRS is warning US crypto holders that it is not a good idea to understate their cryptocurrency earnings.
November 24, 2020 | AtoZ Markets – The Internal Revenue Service (IRS), is again sending warning letters to cryptocurrency holders and stating that they must pay taxes and not hide the profits generated from investing in digital assets. The department sent similar letters last year.
IRS sends 0ut debt notifications to US crypto holders
According to a blog post published by cryptocurrency tax provider CryptoTrader.tax, the company has received several CP2000 notifications. The IRS will send a CP2000 notice to an individual if it believes that its declared income is different from what the tax authority has.
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
Tax experts said the IRS was wrong and added that the main problem is that Coinbase and other crypto exchanges are reporting user transactions using Form 1099K instead of 1099 or 1099B. Over the past couple of days, dozens of people have received CP2000 from the IRS.
Commenting on the matter, David Kemmerer, CEO of CryptoTrader.Tax, said:
“1099-K was never intended as a form that cryptocurrency exchanges can use to report earnings. It was created to report income from platforms where third-party sellers like Uber, Lyft, and Etsy pay you directly. The form doesn’t make sense in the context of a cryptocurrency exchange, and yet many well-known exchanges such as Coinbase have decided that they are reporting customer income data via the 1099 form.”
The real problem with Form 1099K, Kemmerer said, is that it doesn’t reflect any gains or losses, but shows gross revenues, including all transactions associated with an individual.
“This is a problem with this form. Rather than reporting P&L (which is the real numbers you need for tax reporting), the 1099-K summarizes all your trades and sales that have occurred in your Coinbase account and reports that number to the IRS. This gives the impression that you have huge amounts of unreported income on your tax return, ”he added.
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