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If you received an IRS notice about cryptocurrency, do not panic - but do not ignore it. Here is what irs cp2000 crypto notice means and what to do about it.
Types of Crypto IRS Notices
The IRS sends different notices for different situations. Letter 6173 requests information about your crypto transactions. Letter 6174 and 6174-A suggest you may have underreported crypto income. CP2000 proposes additional tax based on exchange data that does not match your return. A Notice of Deficiency (90-day letter) is a formal determination that you owe additional tax.
The CP2000 Notice
This is the most common crypto notice. The IRS received data from your exchange showing proceeds from crypto sales. Your tax return either did not report these proceeds or reported a different amount. The CP2000 proposes additional tax, penalties, and interest. You have 30 days to respond.
How to Respond
Never ignore an IRS notice - the proposed changes automatically become final if you do not respond by the deadline. Review the exchange data the IRS referenced. Compare it against your records. If the IRS is wrong, prepare a detailed response with documentation showing the correct amounts. If they are partially right, agree to the correct portions and dispute the rest.
When to Get Help
If the proposed additional tax is significant, or if the notice involves unreported income from multiple years, a tax attorney should handle the response. The initial response shapes the trajectory of the case, and a poorly drafted response can make things worse.