What should I do with the CP2501 I received in the mail today after experiencing losses during the 2021 crypto Robinhood frenzy?

This actually is pretty easy to fix if you only traded crypto through Robinhood. You can do it yourself, or find a tax professional with experience responding to CP2000 / CP2501 notices. Important thing to note: this is just a proposal and you get a chance to respond.

First thing is to download your 1099s and then basically correct your tax return. If you also traded stocks there will be a separate 1099 from Robinhood for that. Also make sure you include any other income, like that $53 which is probably from one of the Robinhood 1099s.

You can use the software you originally used to file to amend your return, but DO NOT SUBMIT the amended return by e-file. You just need to do this to get the forms you need for your response to the CP2501 notice.

You can also use FreeTaxUSA to basically recreate your return as it should have been filed with the capital gains information. FreeTaxUSA has a summary feature for capital gains, and you can use it for this since you usually need to send full copies of the 1099s with your response. If you traded both crypto and stocks with Robinhood, do separate summaries - Robinhood Securities, Robinhood Crypto, etc. Same if you used any other brokerages.

When you are done check the preview - you need Form 8949 and Schedule D for your response. If you use summaries for any capital gains transactions the Description on Form 8949 should say something like "Robinhood Crypto See Stmt" - that means you need to attach a statement with the details of the crypto transactions. You can use the full Robinhood crypto 1099 for this.

You might need other forms if there were other types of income you left off the return. You can also send a copy of the corrected Form 1040 - just make sure to write "CP2501 INFO ONLY" on the top margin.

Next thing is to write an explanation that you disagree with the proposed tax and are including the forms with the cost basis. If you have a net capital gain, you will probably owe some taxes but a lot less than what IRS says you owe. If you have a net capital loss, that might actually result in a refund for 2021 once everything is processed.

Keep copies of everything and send your response by certified mail to the address on the letter. Again, never ever file a regular amended return to try to fix this - you have to respond directly to the AUR unit that sent the notice. Amended returns go to a different department.

If you need more tips search online for how to respond to a CP2000 - that's the notice number more commonly used by IRS for unreported income.

You may need to amend your 2021 state tax return to include any net capital gains. And if you had a net capital loss more than $3,000, you should amend your 2022 tax return (if you already filed) to include the capital loss.

Btw if you respond in time but get a Notice of Deficiency from IRS, try calling the AUR unit to make sure they have your response. Because they are so far behind sometimes the next notice gets issued automatically even though you responded in time.