I just got a proposed amount due of $116,000 based on buying and selling bitcoin in 2021 and I’m panicking! I lost money not made money, what should I do?

[dwj092373]

Proposed amount due is a letter from the IRS

[Bsch4477]

TurboTax has no information about your return after it is accepted. The IRS should send you a letter explaining the change. Follow the instructions on the letter 

[Critter-3]

Did you fail to report the sales of the bitcoin on the return completely ?   If so you can respond to the notice with an amended return to show the cost basis which produced a loss on the Sch D.  Read the notice carefully to see how/what you can do to dispute the proposed changes. 

[Opus 17]

For that amount of money, you need to do an immediate assessment of the quality of your documentation, and then, perhaps, hire a professional to represent you. Be very careful to pay attention to any deadlines in the letter, because if you are required to make a response by a certain deadline, and you fail to meet the deadline, that might be game over. 

The IRS is allowed to tax income that it knows about, and it is not required to give you credit for any adjustments or deductions unless you prove them adequately. For example, if the IRS knows that you had trading activity, and you had gross sales of $500,000, that might add up to more than $100,000 of taxable short-term capital gains. The IRS doesn’t know that you lost money on those trades unless you put it in writing.  And once you file a schedule D for the capital gains showing that you broke even or actually lost money, (essentially that your account was churning), they might accept it, or they might send another letter back asking for more proof.  You will want to make sure that all of your documents and other account statements are in order, and that you can paint a clear picture with proof that you actually had no capital gains or that you had losses.

[fanfare]

How would the IRS know you sold $116,000 worth of Bitcoin ?

@dwj092373 

[dwj092373]

Thank you, this makes me feel better.  I broke even or lost a little in the end, and I think I’ll have good records of this in the next day or two.  I appreciate your answer! 

[Critter-3]

@fanfare   Some broker's have been reporting the crypto sales on a 1099-B for a while now ...Robinhood for instance  issues 2 1099-B forms each year  ... one for the crypto and one for everything else.  If the OP failed to report the crypto 1099-B that could be the cause such a massive error.  

[dwj092373]

Yes, I don’t remember getting a 1099b and I didn’t have gains so I didn’t report anything, didn’t know I had to.  What do I do from here?  I found all of my cash app records 

[Opus 17]

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@dwj092373 wrote:

Yes, I don’t remember getting a 1099b and I didn’t have gains so I didn’t report anything, didn’t know I had to.  What do I do from here?  I found all of my cash app records 

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Start by getting your wage and income transcript for 2021 from the IRS, this will show what income they think you received and where it was from.

https://www.irs.gov/individuals/get-transcript

Also check any brokers or exchanges you used in 2021 and see if they issued a 1099-B, you may be able to download it electronically.

From there, there are a lot of different possibilities.  If everything agrees, you might prepare an amended return showing the gains and offsetting losses, and send it to the address in the letter (not the regular amending address) with a letter of explanation.  I would probably not include further proof (unless the letter asked for it) but I would say in the letter that you have the account statements to back it up.

It's also possible you are the victim of identity theft and someone used your SSN for their bank records, so this money is not even yours.  Or you might disagree with the figures on the 1099-B if there is one.  

Just take one step at a time, first figure out exactly what income the IRS is talking about. 

[dwj092373]

Wow, I really appreciate this information.  Thank you for taking the time.  I’m really having a hard time figuring where these numbers came from, you gave me a great place to start with the transcript.  Thank you very much.

will turbo tax help line be of assistance do you think?  Audit protection?  I did pay extra for that if it helps but I’m not audited at this point.

thank you again.