The IRS Just Sent a Round of Collection Letters to Crypto Holders
- After a round of warning letters first went out last month, it's becoming clear that the agency isn't messing around.

Cryptocurrency holders have earned a reputation for being notoriously bad at reporting taxes. In 2018, a slew of reports revealed that only a tiny percentage of cryptocurrency investors were properly reporting their gains and losses that year.
However, the dismal reporting may not have been entirely the hodlers’ faults--after all, the IRS had provided a rather unclear set of guidelines when it came to reporting crypto, and its enforcement of the rules had been somewhat wishy-washy. But not anymore.
Indeed, the IRS has now reportedly sent out yet another round of letters to crypto holders: this time, to point the finger at taxpayers whom it believes have misreported their crypto-related income--and to collect what they are owed.
Yesterday the IRS released that by the end of August over 10,000 taxpayers will receive letters regarding their crypto compliance.https://t.co/vwAgxpWgx5
— Crypto Tax Girl (@CryptoTaxGirl) July 28, 2019
CoinDesk reported that one such letter, dated July 29th, 2019, said that a taxpayer owed a total of $3900 for 2017--$3600 in tax and the rest in accrued interest.
This particular kind of letter (known in the tax world as a CP2000 letter) has been used outside of the cryptocurrency industry in the past. However, Chandan Lodha, co-founder of crypto tax software provider CoinTracker, told CoinDesk that the use of this letter in the crypto space “[is] definitely a new phenomenon.”
However, the letters are not necessarily collection notices. If taxpayers can produce documentation showing that they do not owe, they’re off the hook.
Specifically, Lodha said that recipients have 30 days to respond to the letter. “First they send you the CP2000, they send the proposed amount due and you say ‘yes, I’ll pay that’ or ‘no, and here’s the supporting documentation,” he explained.
“The IRS is expanding our efforts involving virtual currency”
The original round of letters came in July when the IRS sent out a series of warnings (or “educational letters,” as the IRS called them) to individuals who were suspected of having incorrectly reported their crypto-related taxes.
The warning letters came in three different varieties, each with a variation on the following statement: “We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”
IRS Commissioner Chuck Rettig said in a statement around the time that the first round of letters was sent that "taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties."
“The IRS is expanding our efforts involving virtual currency, including increased use of data Analytics Analytics Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision making. In the trading space, analytics are applied in a predictive manner in an attempt to more accurately forecast the price. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analytics may also be structured with a descriptive model, where readers attempt to draw a correlation and better understanding as to how and why traders react to a particular set of variables. Traders sometimes implement technical indicators such as moving averages, Bollinger Bands, and breakpoints which are built upon historical data and are used to predict future price movements. How Analytics Relates to Algo TradingAnalytics are relied upon in the concept of algorithmic trading where software is programmed to autonomously signal and/or execute buy and sell orders based upon a series of predetermined factors. In the institutional space, Algo-trading has become vastly competitive over the years as trading institutions seek to outperform competitors through automated systems and the virtual application of trading strategies.The digestion and computation of analytics are also seen in the emerging field of high-frequency trading, where supercomputers are used to analyze multiple markets simultaneously to make near-instantaneous automated trading decisions. Platforms that support HFT have the capability to significantly outperform human traders.This is due to the innate ability to be able to comprehensively analyze big data sets while taking under do consideration an innumerable sum of factors that humans are incapable of comprehending in such speed. Additionally, analytics are seen with backtesting. Backtesting is used by traders to test the consistency and effectiveness of trading strategies and software-based trading solutions against historical price data. Backtesting also serves as an ideal playground for the further development of high-frequency trading as well as evaluating the performance of manual or automated trades. Analytics will continue to have an increasingly significant role in trading as emerging technologies and the advancement of trading applications progress beyond human capability. Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision making. In the trading space, analytics are applied in a predictive manner in an attempt to more accurately forecast the price. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analytics may also be structured with a descriptive model, where readers attempt to draw a correlation and better understanding as to how and why traders react to a particular set of variables. Traders sometimes implement technical indicators such as moving averages, Bollinger Bands, and breakpoints which are built upon historical data and are used to predict future price movements. How Analytics Relates to Algo TradingAnalytics are relied upon in the concept of algorithmic trading where software is programmed to autonomously signal and/or execute buy and sell orders based upon a series of predetermined factors. In the institutional space, Algo-trading has become vastly competitive over the years as trading institutions seek to outperform competitors through automated systems and the virtual application of trading strategies.The digestion and computation of analytics are also seen in the emerging field of high-frequency trading, where supercomputers are used to analyze multiple markets simultaneously to make near-instantaneous automated trading decisions. Platforms that support HFT have the capability to significantly outperform human traders.This is due to the innate ability to be able to comprehensively analyze big data sets while taking under do consideration an innumerable sum of factors that humans are incapable of comprehending in such speed. Additionally, analytics are seen with backtesting. Backtesting is used by traders to test the consistency and effectiveness of trading strategies and software-based trading solutions against historical price data. Backtesting also serves as an ideal playground for the further development of high-frequency trading as well as evaluating the performance of manual or automated trades. Analytics will continue to have an increasingly significant role in trading as emerging technologies and the advancement of trading applications progress beyond human capability. Read this Term. We are focused on enforcing the law and helping taxpayers fully understand and meet their Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you or will owe you money that is considered an obligation. Different Types of ObligationsBonds, banknotes, and coins are examples of obligations because they assure users that they are accredited with the face value of that item. Obligations play a considerable role in personal finance and should be included in every budget. While every budget is different from one another, individuals can use the Financial Obligation Ratio (FOR) that is published quarterly by the Federal Reserve Board as a good reference point on how to best structure individual budgets. For those in the process of retirement planning, obligations should be scrutinized with a wide scope.These should include typical financial obligations such as mortgage payments and healthcare expenses that may incur. In trading, obligations are dealt in the form of put options and short selling or they may refer to the selling of shares on the next trading day after they were purchased in delivery. When obligations fail to be met and legal proceedings have begun, the severity of the punishment set forth is primarily determined by the terms of the contract although juror and judge intervention may lessen the obligations that must be met to fulfill the contract. In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you or will owe you money that is considered an obligation. Different Types of ObligationsBonds, banknotes, and coins are examples of obligations because they assure users that they are accredited with the face value of that item. Obligations play a considerable role in personal finance and should be included in every budget. While every budget is different from one another, individuals can use the Financial Obligation Ratio (FOR) that is published quarterly by the Federal Reserve Board as a good reference point on how to best structure individual budgets. For those in the process of retirement planning, obligations should be scrutinized with a wide scope.These should include typical financial obligations such as mortgage payments and healthcare expenses that may incur. In trading, obligations are dealt in the form of put options and short selling or they may refer to the selling of shares on the next trading day after they were purchased in delivery. When obligations fail to be met and legal proceedings have begun, the severity of the punishment set forth is primarily determined by the terms of the contract although juror and judge intervention may lessen the obligations that must be met to fulfill the contract. Read this Term.”
The two rounds of letters appear to be a part of the IRS’ renewed effort to crack down on cryptocurrency-related tax collection. The tax agency announced in May of this year that it had begun working on a new set of guidelines for the cryptocurrency space.
Cryptocurrency holders have earned a reputation for being notoriously bad at reporting taxes. In 2018, a slew of reports revealed that only a tiny percentage of cryptocurrency investors were properly reporting their gains and losses that year.
However, the dismal reporting may not have been entirely the hodlers’ faults--after all, the IRS had provided a rather unclear set of guidelines when it came to reporting crypto, and its enforcement of the rules had been somewhat wishy-washy. But not anymore.
Indeed, the IRS has now reportedly sent out yet another round of letters to crypto holders: this time, to point the finger at taxpayers whom it believes have misreported their crypto-related income--and to collect what they are owed.
Yesterday the IRS released that by the end of August over 10,000 taxpayers will receive letters regarding their crypto compliance.https://t.co/vwAgxpWgx5
— Crypto Tax Girl (@CryptoTaxGirl) July 28, 2019
CoinDesk reported that one such letter, dated July 29th, 2019, said that a taxpayer owed a total of $3900 for 2017--$3600 in tax and the rest in accrued interest.
This particular kind of letter (known in the tax world as a CP2000 letter) has been used outside of the cryptocurrency industry in the past. However, Chandan Lodha, co-founder of crypto tax software provider CoinTracker, told CoinDesk that the use of this letter in the crypto space “[is] definitely a new phenomenon.”
However, the letters are not necessarily collection notices. If taxpayers can produce documentation showing that they do not owe, they’re off the hook.
Specifically, Lodha said that recipients have 30 days to respond to the letter. “First they send you the CP2000, they send the proposed amount due and you say ‘yes, I’ll pay that’ or ‘no, and here’s the supporting documentation,” he explained.
“The IRS is expanding our efforts involving virtual currency”
The original round of letters came in July when the IRS sent out a series of warnings (or “educational letters,” as the IRS called them) to individuals who were suspected of having incorrectly reported their crypto-related taxes.
The warning letters came in three different varieties, each with a variation on the following statement: “We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”
IRS Commissioner Chuck Rettig said in a statement around the time that the first round of letters was sent that "taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties."
“The IRS is expanding our efforts involving virtual currency, including increased use of data Analytics Analytics Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision making. In the trading space, analytics are applied in a predictive manner in an attempt to more accurately forecast the price. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analytics may also be structured with a descriptive model, where readers attempt to draw a correlation and better understanding as to how and why traders react to a particular set of variables. Traders sometimes implement technical indicators such as moving averages, Bollinger Bands, and breakpoints which are built upon historical data and are used to predict future price movements. How Analytics Relates to Algo TradingAnalytics are relied upon in the concept of algorithmic trading where software is programmed to autonomously signal and/or execute buy and sell orders based upon a series of predetermined factors. In the institutional space, Algo-trading has become vastly competitive over the years as trading institutions seek to outperform competitors through automated systems and the virtual application of trading strategies.The digestion and computation of analytics are also seen in the emerging field of high-frequency trading, where supercomputers are used to analyze multiple markets simultaneously to make near-instantaneous automated trading decisions. Platforms that support HFT have the capability to significantly outperform human traders.This is due to the innate ability to be able to comprehensively analyze big data sets while taking under do consideration an innumerable sum of factors that humans are incapable of comprehending in such speed. Additionally, analytics are seen with backtesting. Backtesting is used by traders to test the consistency and effectiveness of trading strategies and software-based trading solutions against historical price data. Backtesting also serves as an ideal playground for the further development of high-frequency trading as well as evaluating the performance of manual or automated trades. Analytics will continue to have an increasingly significant role in trading as emerging technologies and the advancement of trading applications progress beyond human capability. Analytics may be defined as the detection, analysis, and relay of consequential patterns in data. Analytics also seeks to explain or accurately reflect the relationship between data and effective decision making. In the trading space, analytics are applied in a predictive manner in an attempt to more accurately forecast the price. This predictive model of analytics generally involves the analysis of historical price patterns that are used in an attempt to determine certain price outcomes. Analytics may also be structured with a descriptive model, where readers attempt to draw a correlation and better understanding as to how and why traders react to a particular set of variables. Traders sometimes implement technical indicators such as moving averages, Bollinger Bands, and breakpoints which are built upon historical data and are used to predict future price movements. How Analytics Relates to Algo TradingAnalytics are relied upon in the concept of algorithmic trading where software is programmed to autonomously signal and/or execute buy and sell orders based upon a series of predetermined factors. In the institutional space, Algo-trading has become vastly competitive over the years as trading institutions seek to outperform competitors through automated systems and the virtual application of trading strategies.The digestion and computation of analytics are also seen in the emerging field of high-frequency trading, where supercomputers are used to analyze multiple markets simultaneously to make near-instantaneous automated trading decisions. Platforms that support HFT have the capability to significantly outperform human traders.This is due to the innate ability to be able to comprehensively analyze big data sets while taking under do consideration an innumerable sum of factors that humans are incapable of comprehending in such speed. Additionally, analytics are seen with backtesting. Backtesting is used by traders to test the consistency and effectiveness of trading strategies and software-based trading solutions against historical price data. Backtesting also serves as an ideal playground for the further development of high-frequency trading as well as evaluating the performance of manual or automated trades. Analytics will continue to have an increasingly significant role in trading as emerging technologies and the advancement of trading applications progress beyond human capability. Read this Term. We are focused on enforcing the law and helping taxpayers fully understand and meet their Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you or will owe you money that is considered an obligation. Different Types of ObligationsBonds, banknotes, and coins are examples of obligations because they assure users that they are accredited with the face value of that item. Obligations play a considerable role in personal finance and should be included in every budget. While every budget is different from one another, individuals can use the Financial Obligation Ratio (FOR) that is published quarterly by the Federal Reserve Board as a good reference point on how to best structure individual budgets. For those in the process of retirement planning, obligations should be scrutinized with a wide scope.These should include typical financial obligations such as mortgage payments and healthcare expenses that may incur. In trading, obligations are dealt in the form of put options and short selling or they may refer to the selling of shares on the next trading day after they were purchased in delivery. When obligations fail to be met and legal proceedings have begun, the severity of the punishment set forth is primarily determined by the terms of the contract although juror and judge intervention may lessen the obligations that must be met to fulfill the contract. In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you or will owe you money that is considered an obligation. Different Types of ObligationsBonds, banknotes, and coins are examples of obligations because they assure users that they are accredited with the face value of that item. Obligations play a considerable role in personal finance and should be included in every budget. While every budget is different from one another, individuals can use the Financial Obligation Ratio (FOR) that is published quarterly by the Federal Reserve Board as a good reference point on how to best structure individual budgets. For those in the process of retirement planning, obligations should be scrutinized with a wide scope.These should include typical financial obligations such as mortgage payments and healthcare expenses that may incur. In trading, obligations are dealt in the form of put options and short selling or they may refer to the selling of shares on the next trading day after they were purchased in delivery. When obligations fail to be met and legal proceedings have begun, the severity of the punishment set forth is primarily determined by the terms of the contract although juror and judge intervention may lessen the obligations that must be met to fulfill the contract. Read this Term.”
The two rounds of letters appear to be a part of the IRS’ renewed effort to crack down on cryptocurrency-related tax collection. The tax agency announced in May of this year that it had begun working on a new set of guidelines for the cryptocurrency space.