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CryptoTrader.tax, a cryptocurrency tax software and calculator, said in a blog post that it has been contacted by “dozens of individuals” who have received these inaccurate CP2000 letters, or letters that inform taxpayers when their income information from third parties does not match the income listed on their tax returns.
In one example, CryptoTrader shared an image of one recipient’s CP2000 Notice from the IRS claiming he owed $127,000 in taxes and penalties for underreporting his income by failing to include his cryptocurrency investing on his tax forms.
The reason the recipient "received a CP2000 is because Coinbase sent the IRS a 1099-K detailing his crypto activity of $292,427,” the website explained and advised those who have gotten similar letters from the IRS to notify their tax advisers.
The IRS told FOX Business that any time it receives third-party 1099-K reports, it tries to match those with individual tax returns. If there is a discrepancy, the IRS sends CP2000 letters so that taxpayers have a chance to respond.
"There can be mismatches," IRS spokesman Eric Smith said. "We do contact people about those discrepancies. ... They have an opportunity to respond."
Coinbase did not immediately respond to an inquiry from FOX Business.
“1099-K was never meant to be a form for cryptocurrency exchanges to use to report income,” CryptoTrader's blog post reads. "The form does not make sense in the context of cryptocurrency exchanges, and yet, many prominent exchanges like Coinbase have decided it is the 1099 they are going to use to report customer earnings information."