IRS Notice CP2501 is a letter the IRS issues to taxpayers when there are mismatches between the information reported on their tax returns and the income or payment data reported to the IRS by third parties.
If you’ve received a CP2501 notice from the IRS, you must act fast to avoid getting slapped with a higher tax bill than you deserve. Read on to learn what this notice means and how to respond.
What Is a CP2501 Notice?
IRS Notice CP2501 is the government’s way to notify you that there is a discrepancy between what was reported on your tax return and other information the IRS has on file. This discrepancy may cause an increase or decrease in your tax liability or may not change it at all.
The IRS has now identified this discrepancy, and its Automated Underreporter (AUR) unit has issued a CP2501 notice to inform you about this mismatch and request additional information from you to resolve it.
You have 30 days from the date of the letter to respond. You can either mail your CP2501 response to the return address on the enclosed envelope or fax your documents to the fax number in the notice.
If you don’t agree with the notice, you can call the IRS on the phone number displayed on the CP2501 letter to resolve your issues. However, that’s not always enough to settle all your problems. In such a case, you should mail or fax a signed statement to the IRS explaining your disagreement, along with any supporting documentation.
Why Did I Receive a CP2501 Notice From the IRS?
If you received a CP2501 notice, it is because the information reported to the IRS by third parties (like your employer, cryptocurrency exchange, brokerage, or bank) doesn’t match the information you reported on your tax return. For example, if the W-2 your employer sends you at the beginning of the year differs from the information you reported to the IRS, you will likely get a CP2501 letter.
The IRS is now requesting that you explain this discrepancy by the respective deadline.
What Does IRS Notice CP2501 Mean for Crypto Investors?
Many cryptocurrency exchanges report their users’ trading activity to the IRS using Form 1099-B, Form 1099-MISC, or Form 1099-DA (coming soon).
Unfortunately, these forms can paint a very inaccurate picture of your tax liability and make the IRS think that you owe a lot more than you actually do. Watch our video for more information.
Form 1099-B
Form 1099-B is the most accurate, but it can be lacking if you use more than one exchange or wallet. For example, moving your crypto off of Robinhood and into one of your wallets may be reported as a taxable transaction when it’s not. Also, it often doesn’t include crypto cost basis information, which leads to inflated tax bills.
Form 1099-MISC
Form 1099-MISC—used by Coinbase and many other exchanges—only reports certain types of crypto rewards as ordinary income. It does not include capital gains from cryptocurrency transactions.
Form 1099-DA
Crypto exchanges will soon be able to report their users’ taxable transactions via the upcoming Form 1099-DA. While it’s the first tax form created specifically for cryptocurrencies to simplify reporting, investors can still expect many challenges.
IRS Notices CP2501 vs. CP2000 vs. CP3219A: What’s the Difference?
CP2501, CP2000, and CP3219A are three IRS notices with many similarities. All three are based on discrepancies between what you reported on your tax return and information the IRS has received from third parties. Also, all three provide an opportunity to dispute the amount owed—but with varying degrees of urgency.
CP2501
Anyone with a disparity on their federal tax return could receive Notice CP2501. It doesn’t include a proposed amount owed but may be followed up by an IRS CP2000 notice if you don’t act in time.
CP2000
You may receive a CP2000 as your first notice or as a follow up to CP2501. It proposes an amount due, informing you about any amount of taxes, interest, and penalties you may owe to the IRS.
CP3219A
You may receive a CP3219A notice if the information on your tax return differs from what third parties reported to the IRS and you failed to respond to previous notices the agency sent to your address. Due to your lack of response, the IRS changed the amount of income tax on your return and now explains how the new sum was calculated in CP3219A.
CP3219A is a notice of deficiency, which you must sign and mail back to the IRS in 90 days to receive a bill for the amount you owe. If you disagree, this notice is your last chance to dispute the proposed amount due before the IRS sends you a formal bill. You can challenge the proposed changes by filing a petition with the U.S. Tax Court by the deadline shown on the letter.
Pro Tip: Whichever notice you receive, you shouldn’t wait to take action—the longer you wait, the fewer options you’ll have to dispute the proposed amount due. Schedule a confidential call with Gordon Law’s seasoned tax attorneys, and we’ll help resolve your CP2501 with the IRS.
Notices CP501 vs. CP2501: Key Differences
Despite only a one-digit difference (CP501 vs. CP2501) between these two IRS notices, they’re completely different from each other.
CP2501
You receive Notice CP2501 when the IRS identifies a discrepancy between the data third parties reported to the agency and the information on your tax return. It is not a bill; it doesn’t even include a proposed amount due.
CP501
The IRS sends out a CP501 notice to remind you about an outstanding tax balance. You received this letter because you haven’t paid or responded to the agency’s previous notice that requested you to settle this balance. Failure to pay the amount due may result in the IRS filing a notice of federal tax lien.
Leave Your CP2501 Response to the Professionals
If you agree with the IRS’s assessment, you must mail or fax your CP2501 response to the agency within the 30-day deadline. The IRS will send you a CP2000 notice with the proposed amount due, after which you can pay the bill online or by mail.
But if you’re confused by your CP2501 notice or don’t think the numbers are correct, you can contact our experienced tax lawyers right away. Make note of the due date, and do not wait until the last day to take action!
Cryptocurrency Traders:
If you received the CP2501 in relation to cryptocurrency trading, then you should not trust the IRS to calculate your taxes correctly. The information that the IRS receives from third parties is typically incomplete, leading to a higher tax balance than you really owe.
We’ll get to work ASAP on responding to the IRS with all of the appropriate documentation by the deadline listed in your letter. Our crypto tax professionals will build or amend your complete crypto tax report for the year(s) in question. This includes recording every single cryptocurrency transaction that you made during those years.
We’ve been doing crypto taxes since 2014 and have created hundreds of these reports, so you can rest easy knowing the pros are taking care of it.
Other Types of Income:
As a regular taxpayer, we will analyze your tax returns, bank statements, receipts, and other documentation to determine whether the IRS is correct in its assessment.
If it isn’t, we’ll fill out the CP2501 response form, explaining clearly why the IRS’s assessment is incorrect and attaching the necessary documentation to support your case.
Need Help Responding to an IRS CP2501 Notice?
The worst thing you can do is ignore the notice. Once the IRS finalizes the amount you owe, it can take extreme tax debt collection measures like levying your bank account or placing a lien on your home.
Do not wait—schedule a consultation with one of our industry-leading tax attorneys today to get your issue resolved fast!
