The IRS is stepping up its game regarding how it enforces compliance with crypto tax regulations. With new regulations like the digital asset broker reporting regulations, U.S. custodial exchanges will have to issue Form 1099-DA during the 2026 filing season for transactions starting Jan. 1, 2025. 

This means that tax authorities will receive a copy of these forms, disclosing every trade made on centralized exchanges (CEXs), allowing them to quickly compare forms received to what taxpayers report. If there's a mismatch in the information, for example, an exchange issues a 1099-DA, and you do not report those transactions, the IRS will issue an automated notice, such as a CP2000 notice.

Below, we’ll explain what an IRS CP2000 notice is and provide a sample CP2000 response letter to help you address it promptly before the issue escalates.

What to know about CP2000 notices

A CP2000 notice flags discrepancies between what a taxpayer reports as income and what third-party institutions report to the IRS. For crypto investors, this usually comes down to mismatches between the income reported on a tax return and transaction data from CEXs on forms like the 1099-K, 1099-B,1099-MISC, and 1099-DA, starting with the 2026 filing season.

But here’s the thing: A CP2000 notice isn’t a formal audit. It’s an automated adjustment showing what the IRS believes you owe based on income discrepancies it detected. These notices – sometimes called "30-day letters" – typically provide 30 days from the notice date to respond and clear up any discrepancies. If you identify discrepancies, you can respond with supporting evidence – such as transaction records from crypto tax software – to clarify your tax position and prevent potential penalties or a notice of deficiency.

It’s important to note that the IRS may not have a complete view of a taxpayer’s crypto activity, particularly if relying solely on reports from CEXs. These reports often lack key details such as cost basis, transfers to self-custody wallets, or transactions on DeFi platforms, which can result in incomplete tax calculations. Even with the upcoming 1099-DA reporting requirements starting with the 2025 tax year, certain transactions may still fall outside the scope of third-party reporting. 

For example, exchanges that issue Form 1099-K report only gross transaction amounts without including cost basis or capital gains details. Additionally, these forms don’t account for transfers to self-custody wallets or transactions within decentralized finance (DeFi) applications. As a result, the reported totals may not reflect actual taxable income. To ensure accurate tax reporting, investors should maintain comprehensive records of their transactions.

How to respond to an IRS CP2000 letter

Receiving a CP2000 notice from the IRS can be nerve-wracking, but remember, it isn't a formal audit, and you have 30 days to respond. CP2000 letters lay everything out, so all you need to do is review the details and decide whether to accept or dispute the IRS’s claims. 

Here's a closer look at the process:

Evaluate your situation

If you receive a CP2000 notice, start by carefully reviewing the IRS's proposed changes and how they arrived at those figures. Compare them with your filed income tax return and transaction records to identify any discrepancies. If you disagree, gather supporting documentation – such as transaction reports from crypto tax software – to support your position before determining your next steps. Depending on the complexity of your crypto activity, it may be worth consulting a crypto-savvy CPA to ensure everything checks out. CoinTracker's Connect portal can help you get in touch with experts for more personalized support.

Decide on the right response

Once you’ve compared the IRS’s proposed adjustments to your tax returns and transaction records, the next step is determining how to respond. If you determine the IRS’s proposed changes are accurate, follow the notice instructions to pay any additional tax due by the deadline.

If you disagree, gather supporting documentation – such as exchange statements and transaction reports, bank statements, 1099s or other tax forms, and records from self-custodial wallets or Decentralized Finance (DeFi) platforms. For self-hosted wallets and DeFi activity, your public address and blockchain explorers like Etherscan can help verify transaction history. 

Software like CoinTracker can help streamline this process by consolidating your full transaction history from connected wallets and exchanges while referencing the original sources. However, you may still need to supplement this data with exchange transaction reports, bank statements, and wallet addresses. Providing detailed and well-organized records ensures the IRS has the necessary context to evaluate the proposed adjustments accurately.

Respond to the IRS

The CP2000 notice includes a response form (typically on page 7), where you can either agree or dispute the proposed tax changes. If you agree with the IRS’s adjustments, check the box for “I agree with all changes,” sign and date the form, and use the payment voucher (often found on page 9) to submit payment.

If you disagree, submit a written response letter explaining the discrepancies, along with supporting documentation. A tool like CoinTracker’s Portfolio Tracker can help you consolidate transactions across many exchanges and Web3, providing a clearer picture of your crypto activity. However, taxpayers should independently verify all records before submitting them to the IRS.

In some cases, correcting the issue may require filing an amended return. If your response involves adjustments to previously reported income or missing transactions, consulting a crypto-savvy CPA can help ensure compliance and accuracy when preparing an amended return.

Sample CP2000 response letter

1. Introduction

Department of the Treasury

Internal Revenue Service

[Address from CP2000 notice]

Notice: CP2000

Tax year: [tax year referenced in notice]

Notice date: [date referenced in notice]

AUR control number: [referenced in notice]

Name: [Your name]

SSN: [Your social security number, referenced in notice]

Subject: Response to CP2000 notice

To whom it may concern:

I am writing in response to the above-referenced notice regarding proposed changes to my [year] Form 1040 tax return. After reviewing the notice and comparing it with my transaction records, I would like to provide additional information to clarify my reported income.

2. Disputed adjustments

I disagree with the proposed adjustment(s) with respect to the following items: (reference each proposed change on the CP2000 notice and explain why you disagree)

1. [Proposed Change: Additional Income Reported – $X]

IRS Position: The notice includes an additional [$X] in income reported on [Form 1099-K/1099-B/1099-MISC] from [Source/Exchange Name].

Why This Is Incorrect: This amount includes non-taxable transfers between my own accounts/wallets that do not represent taxable income.

Supporting Documentation: A labeled transaction report detailing each transfer, including date, amount, originating wallet address, and destination wallet address, confirming that these are non-taxable transfers.

2. [Proposed Change: Capital Gains Adjustment – $X]

IRS Position: The notice reports additional capital gains of [$X] due to missing cost basis information.

Why This Is Incorrect: The reported amount only includes gross proceeds and does not account for cost basis. Please see supporting documentation for the cost basis allocable to these disposals.

Supporting Documentation: Cost basis calculations, exchange transaction reports, and trade history.

3. [Proposed Change: Staking Rewards Reported as Ordinary Income – $X]

IRS Position: The notice includes [$X] as additional ordinary income from staking rewards.

Why This Is Incorrect: The reported amount on Line [XX] includes transactions that were never received, duplicated, or reported elsewhere.

Supporting Documentation: Staking reward transaction logs, exchange statements, or tax software reports.

3. Requested adjustment

Based on my records, my correct taxable income for tax year [year] should reflect the following adjustments: (list adjustments separately, corresponding to your disputed adjustments section)

1. Removal of Non-Taxable Transfers: Exclude [$Z] in reported proceeds that reflect non-taxable wallet transfers.
2. Adjustment to Capital Gains: Adjust net capital gains by [$Y] to account for corrected cost basis
3. Adjustment to Reported Income: Reduce reported taxable income by [$X] due to misclassified staking rewards.

After applying these corrections, my total taxable income for [Year] is [$Corrected Total Income], rather than [$IRS Reported Total Income] as stated in the CP2000 notice.

I respectfully request that the IRS update my records to reflect the corrected taxable income and provide written confirmation of the revised tax liability, including any adjustments to the amount due or overpayment, if applicable.

I appreciate your time in reviewing this information. Please let me know if further clarification is needed. I can be reached at [Your Phone Number] or [Your Email Address].

Sincerely,

[Your Name]

How to avoid receiving a CP2000

The best way to avoid a CP2000 notice? Filing your crypto taxes accurately, based on a well-organized record of all your transactions. You must report all taxable income and pay special attention to properly report any tax forms (W-2s, 1099s, K-1s) to avoid any information mismatches.

Crypto tax software like CoinTracker makes filing your crypto taxes accurately easier by syncing with exchange APIs and wallet addresses, automatically logging every transaction. With this data, investors can accurately track fair market value (FMV) and categorize activities – whether it’s a disposal, a wallet-to-wallet transfer, or taxable income.

The more complete and accurate the initial tax filing, the less likely the IRS will flag discrepancies or issue a CP2000 notice. Keeping detailed records from the start can save you time and help prevent headaches down the line.

Avoid CP2000 confusion with CoinTracker 

Remember, the IRS doesn’t see everything regarding your crypto transactions. Reports from CEXs don’t capture transfers between self-custodial wallets or activity across the broader Web3 ecosystem. That’s why it’s up to investors to maintain a complete transaction record – especially when it comes to tracking cost basis.

With CoinTracker’s Portfolio Tracker, you can link all your accounts in one place, allowing you to give accountants and tax authorities a clear, real-time view of your transaction history.

Get started with a free CoinTracker account today and see how simple it is to stay on top of your crypto tax reporting. 

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.