What are the common mistakes made by cryptocurrency investors that lead to a CP notice from the IRS?

6 answers

• Dec 16, 2021 · 3 years ago
  One common mistake made by cryptocurrency investors that can lead to a CP notice from the IRS is failing to report their cryptocurrency transactions. The IRS considers cryptocurrency as property, and any gains or losses from cryptocurrency transactions are subject to taxation. Therefore, it is important for investors to accurately report their transactions and pay the appropriate taxes. Failure to do so can trigger an audit or a CP notice from the IRS, which can result in penalties and fines.
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• Dec 16, 2021 · 3 years ago
  Another mistake is underreporting or misreporting cryptocurrency gains. Some investors may be tempted to only report their gains when they cash out their cryptocurrency into fiat currency, while ignoring gains from trading one cryptocurrency for another. However, the IRS requires investors to report all cryptocurrency gains, regardless of whether they are converted into fiat currency or not. Failing to report these gains can lead to a CP notice and potential legal consequences.
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• Dec 16, 2021 · 3 years ago
  As a third-party expert, I can say that one common mistake made by cryptocurrency investors is not keeping accurate records of their transactions. The IRS expects investors to maintain detailed records of their cryptocurrency transactions, including dates, amounts, and the fair market value of the cryptocurrency at the time of the transaction. Failure to provide accurate records can raise red flags and result in a CP notice from the IRS.
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• Dec 16, 2021 · 3 years ago
  Some investors may also mistakenly believe that cryptocurrency transactions are anonymous and untraceable. However, the IRS has been cracking down on cryptocurrency tax evasion and has the ability to track cryptocurrency transactions. Therefore, attempting to hide or conceal cryptocurrency transactions can lead to a CP notice and potential legal consequences.
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• Dec 16, 2021 · 3 years ago
  Investors should also be aware of the tax implications of using cryptocurrency for everyday purchases. While it may be convenient to use cryptocurrency for transactions, the IRS still considers these transactions as taxable events. Therefore, failing to report cryptocurrency used for purchases can result in a CP notice from the IRS.
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• Dec 16, 2021 · 3 years ago
  Lastly, some investors may fall into the trap of participating in fraudulent or illegal cryptocurrency schemes. Engaging in Ponzi schemes, pyramid schemes, or other fraudulent activities can not only lead to financial losses but also attract the attention of regulatory authorities like the IRS. Investors should always conduct thorough research and exercise caution when investing in cryptocurrency to avoid receiving a CP notice from the IRS.
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