The IRS recently announced that they will be sending letters to 10,000 taxpayers regarding missing cryptocurrency transactions from their returns. Amending return is crucial in such cases to avoid penalties. There are three notices being sent out, most typically CP-2000-series notices. These are the same type of notices sent to people who leave off stock trading.
Many ordinary individuals who invested and lightly traded various types of coins since 2017 were misled by online blogs (as well as their own judgment) that nothing needed to be reported to the IRS unless the coin was sold for “fiat” or legitimate currency, such as USD. However, this was false.
If you are trading corn for wheat, cows for chickens, gold for silver, or Ripple for Litecoin, you must report this sale on form 8949, just as if you were actively trading stocks in the stock market. The principle of like-kind exchange does not apply here.
None of this is professional advice. However, we recommend that you employ someone with experience for guidance if you have left off crypto trading from your return. Since June, we have already been approached by several individuals contacted by the IRS regarding this matter. We have helped them reach a resolution with the IRS.
It is better to amend your return before the IRS flags it. The IRS assesses additional “substantial” or “material understatement” penalties in instances where they catch the missing transaction first. Amending return proactively can save you from these penalties.
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