For the second consecutive year, the Internal Revenue Service (IRS) is warning cryptocurrency investors that they have underestimated their holdings. But it could be another false alarm.
A bug in the paperwork behind the latest IRS notifications
Many people have recently received a notification warning them that they have pending taxes on returns obtained from crypto holdings that were not reported at the time of the profit declaration for 2018, reports a post published Monday by the tax software provider CryptoTrader. tax.
Shehan Chandrasekera, head of tax strategy at CoinTracker, said he has also heard of cryptocurrency investors who received this type of notice this year.
Formally submitted notifications include the amount the IRS believes users should pay and provide due dates for payment. However, users probably never realized these gains and don't actually have to pay these fees, CryptoTrader.tax said.
Similar warnings were sent to users of several cryptocurrency exchanges last year. At the time, Justin Woodward, the co-founder of TaxBit, another software vendor, said that people were receiving such notices because their exchange reported transactions to the IRS using a specific form called 1099-K.
With this form, the IRS proves that all transactions generate revenue, even if some transactions have actually resulted in a loss for the user. As a result, an exchange could report a significantly inflated tax burden to the user.
Users can report the error to the IRS
The notifications sent in 2019 concerned the 2017 fiscal year. The same problem seems to repeat itself this year, according to the CryptoTrader post. “These tax misunderstandings related to cryptocurrency investments all stem from the fact that Coinbase and other exchanges use the 1099K form to report the proceeds of crypto transactions to the IRS.
This is a problem ”, is written in the post. According to a photo posted on CryptoTrader's official Twitter channel, at least one Coinbase user is definitely involved in the case. It is unclear whether users on other exchanges are also receiving these notifications.
Users who receive any of these forms should calculate their actual gains and losses and report them to the IRS, the post states. At the same time, exchanges could prevent this problem by submitting 1099-B reports to the IRS, which accurately track gains and losses, rather than trader-centric 1099-K forms, as explained in March by TaxBit's other co-founder. Austin Woodward.
At the time, he noted that "there has never been any clear IRS guidance stating that [1099-K] was the correct form." As of press time, no spokespersons for the IRS or Coinbase have commented on the matter.
