Home |IRS Tax Return | What steps should I take to address a CP2000 notice claiming I made over $120k in 2021 from crypto and trading in Robinhood when I actually incurred a loss of around $10k, especially since I cannot afford the $40k the IRS is requesting by June 7th, and where can I find resources or assistance to navigate this situation?

What steps should I take to address a CP2000 notice claiming I made over $120k in 2021 from crypto and trading in Robinhood when I actually incurred a loss of around $10k, especially since I cannot afford the $40k the IRS is requesting by June 7th, and where can I find resources or assistance to navigate this situation?

Robert James, 20+ years of experience in IRS matters
Answered on September 16,2023

Robinhood sends IRS the information for your crypto trades, but only the proceeds amount.

You basically need to reply with a Form 8949 showing the proceeds and cost basis for your trades with your letter disagreeing with the CP2000 proposal.

If you only traded on Robinhood this is pretty easy - you can go into your tax software you used for 2021 and amend, or you can use FreeTaxUSA which has prior years and recreate your original tax return.

You don't want to actually submit an amended return to IRS for this, but this will let you easily create the Form 8949 and Schedule D to send to IRS. You may want to amend your state income tax return.

With FreeTaxUSA you just need to enter a summary of the Robinhood crypto trades for the year. If you do this you also need to send a copy of the Robinhood crypto 1099 to IRS, but that's easier than typing in every trade you made.

You can also go to a CPA or Enrolled Agent, but if you can't find someone you can respond yourself. Send the 2021 Form 8949 and Schedule D, a copy of the Robinhood 1099, and a brief letter saying you disagree with the proposal and are including the forms with the correct cost basis. Send it by Certified mail and keep copies of everything.

If you lost money in 2021 you can lower your taxable income for that year up to $3000. Then if you have more than $3k in losses you carry that capital loss forward to future years. You might need to amend your 2022 tax return to include any capital loss carried forward as well.

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