Coinbase Makes a Big Blunder – Several US Coinbase users have received mail from the IRS (the US tax authorities) claiming several thousand dollars on cryptocurrency gains. Small problem! Users never realized the affected gains.
127,000 dollars in taxes and penalties for … non-existent winnings
The information was relayed by Cryptotrader.tax, a service specializing in calculating the taxation of cryptocurrencies in the United States.
As an example, John Smith (assumed name to protect user anonymity) received a letter from the IRS (Internal Revenue Service) notifying him that he had under-reported his income in 2018 „Due to the failure to include its cryptocurrency investment activity“ . In total, he would be asked to pay some $ 120,960 in taxes and penalties.
Mail received by the user – Source: Cryptotrader
Yet it would appear that this claim is totally unfounded. As Cryptotrader points out, it was actually the IRS that owed Smith money, as he had suffered $ 2,000 in cryptocurrency losses that year.
The case of John Smith is not isolated, because in the space of 2 days, Bitcoin Bonanza was contacted by dozens of Internet users who received similar emails.
Whose fault is it ?
Also according to Cryptotarder, it seems that exchange platforms , such as Coinbase , are at the origin of this misunderstanding of several hundred thousand dollars .
In fact, these exchange platforms would communicate information about their users via form 1099-K instead of using 1099 or 1099-B, which would be appropriate for their business.
“The 1099-K was never intended as a tax return form for cryptocurrency exchanges. It was designed to report income from platforms where you get paid directly by third-party merchants, like Uber, Lyft, and Etsy. The form does not make sense in the context of cryptocurrency exchanges. And yet, many large exchanges, like Coinbase, have decided to use Form 1099 to report customer income information. „