The U.S. Internal Revenue Service (IRS) is stepping up a campaign to send warning letters to cryptocurrency investors, urging them to make sure that they have accurately reported all transactions for tax purposes.
This process started in late July 2019 with a series of “soft notices” delivered to cryptocurrency investors. More than 10,000 such notices were sent out in the first wave, with the goals of informing potential tax code violators that the IRS is concerned about discrepancies and of urging taxpayers who have conducted cryptocurrency transactions to ensure they are filing accurately. At the time, it was reported that only repeated attempts to contact cryptocurrency investors from the IRS could lead to more substantive action.
But the IRS is now apparently taking more concrete steps toward compliance enforcement by sending an entirely new notice, the CP2000. The agency is also including a guide to understanding the primary differences between the CP2000 and the first wave of “soft notices,” to help potential violators understand that the former is more severe.
According to interviews with CP2000 recipients, these notices are more direct and specific than mere warnings that something could be amiss with their tax accounting. In some cases, the IRS may have gathered information from third-party sources, such as cryptocurrency exchanges, to glean an exact figure of unreported taxable income.
Failures to respond adequately within a 30-day window will bring further consequences from the IRS. It is unclear at this time exactly how many of these notices have been delivered, or what the next step will be in IRS enforcement.