I've been trying to resolve this on my own but I'm stuck.
IRS audit letter for crypto. I've been dealing with this for about 4 months now and the situation isn't improving.
What are my legal options here? Is it worth pursuing?
Got a CP2000 notice from the IRS saying I underreported income by $47,000. They got 1099 data from Coinbase showing my total proceeds but didn't account for my cost basis. I actually had a net LOSS of $3,000 for the year when you factor in what I paid for the crypto.
Is this as simple as responding with my cost basis documentation? Or do I need a tax attorney?
CP2000 notices for crypto are incredibly common right now. The IRS matching system sees proceeds from exchanges but often has no cost basis information. It assumes your basis is ZERO, creating a phantom gain.
If you have good records: (1) Download your full transaction history from every exchange you used, (2) use crypto tax software (CoinTracker, Koinly, TaxBit) to calculate your actual cost basis using FIFO/HIFO/specific identification, (3) respond to the CP2000 with a detailed response letter, Form 8949, and supporting documentation.
Don't ignore the notice — you have 30 days to respond. If you don't respond, the IRS assessment becomes final and you'll owe the full amount plus penalties and interest.