Crypto Holders Who Don’t Owe Tax May Still Hear From IRS

Some cryptocurrency investors have started to receive notices from the Internal Revenue Service because what they reported on their tax returns doesn’t match information the agency is getting from third parties, such as exchanges.

But it is very likely that the many of these recipients actually paid the correct amount of taxes and the IRS’s forms are to blame, tax practitioners say.

“The information the IRS has comes from very unreliable data,” said Sean Ryan, chief technology officer at NODE40 LLC, a company that develops software to help people calculate their tax liabilities from cryptocurrency transactions.

The mismatch notices—called CP2000 notices—inform taxpayers that discrepancies have been detected and ask them to justify the positions they took on their returns.

For cryptocurrency investors, the mismatches often occur because a handful of virtual currency exchanges are providing information to the IRS that paints an inaccurate picture of what investors really…