Anybody have Coinbase screw up with IRS? They think I owe $1.15 million!!

[thecodebear]

So Coinbase reports to the IRS the trading volume of people on Coinbase (if you're over a certain amount). In 2018 I had a volume of over $2 million cuz I was trading with like $80k for a bit at the beginning of the year after the 2017 bull run. IRS just sent me a letter that according to their calculations I owe them $1.15 million including penalty and interest, by 5 days ago.

This is especially funny because I actually lost a few tens of thousands of dollars from trading in 2018 because I was trying to trade during the bear market, and they think I made over $2 million haha

This means the IRS thinks Coinbase is sending them the amount people have profited, not their volume. So like...has anyone else had this problem? Or did some idiot at the IRS just make this mistake with me?!

[thecodebear]

Ah I guess this has been happening since last year at least. This article explains exactly what the IRS is doing to me.

https://cointelegraph.com/news/the-irs-is-blindly-coming-after-cryptocurrency-traders-heres-why

Wonder how easy a fix this is to tell the IRS they are wrong.

[suchmoon]

What did you report on the 2018 tax return? Did you file Schedule D matching your Coinbase volume?

[exstasie]

IRS just sent me a letter that according to their calculations I owe them $1.15 million including penalty and interest, by 5 days ago.

This is serious. I would talk to a tax attorney ASAP and get ahead of this.

So just to confirm, you did get a 1099 from Coinbase for 2018? Were you aware of it?

What did you report on the 2018 tax return? Did you file Schedule D matching your Coinbase volume?

This. Coinbase doesn't report cost basis on your 1099. If you didn't report anything on your return (maybe because you only took losses and knew there was no tax liability), they assumed your cost basis was $0, hence the insane tax bill they just sent.

[philipma1957]

Ah I guess this has been happening since last year at least. This article explains exactly what the IRS is doing to me.

https://cointelegraph.com/news/the-irs-is-blindly-coming-after-cryptocurrency-traders-heres-why

Wonder how easy a fix this is to tell the IRS they are wrong.

This is a year old. which means you were given a warning letter last year.

Most likely you ignored it thus the IRS pillaged you.

Find a good accountant  and try to fix this.

If you did not file anything at all you are going to get fucked even if you lost money.

The IRS punishes you for not filing properly.

Btw i filed my 2018 return three times trying to get this right.
As I got a warning letter in July 2019.

I worked for the IRS back in the 80’s
My wife is a retired IRS agent as was my late mom.

I have a degree in accounting and it was really really really hard to fix this.

I paid in time and research to do it right.
My 2019 returns were easier.
Good luck.

[thecodebear]

This is the first letter I've got about this, so no I didn't ignore it last year.


Umm, I just reported my overall losses on the tax return, because figuring out all the trades is basically impossible. So I just did the best I could do to figure out my net gain/loss, and reported that to the IRS. In the online tax service I use there was a thing where I could put my overall net capital gains/losses so that's where I put my losses. I do remember getting a document from Coinbase in around end of 2018 saying how I had a $2.2 million volume, but that's got nothing to do with my net gain/loss obviously. Apparently the IRS takes that as profit though ha. This letter says to return it either agreeing with their assessment or disagreeing and include a not as to why. So I'll tell them how they obviously screwed up and I guess go from there. I guess this has been a problem for a lot of people since there is that article from last year, hopefully it's an easy fix then.

[exstasie]

This is the first letter I've got about this, so no I didn't ignore it last year.

Umm, I just reported my overall losses on the tax return, because figuring out all the trades is basically impossible. So I just did the best I could do to figure out my net gain/loss, and reported that to the IRS. I do remember getting a document from Coinbase saying how I had a $2.2 million volume, but that's got nothing to do with my net gain/loss obviously. Apparently the IRS takes that as profit though ha.

So you didn't file a Schedule D? Uh oh.

I'm pretty sure since your Schedule D didn't match what Coinbase reported, they assumed Coinbase reported correctly and that everything had a cost basis of $0. Or something along those lines.

This letter says to return it either agreeing with their assessment or disagreeing and include a not as to why. So I'll tell them how they obviously screwed up and I guess go from there. I guess this has been a problem for a lot of people since there is that article from last year, hopefully it's an easy fix then.

I would get a tax lawyer and have them respond. You're going to need to amend to report all your Coinbase trading activity.

[thecodebear]

This is the first letter I've got about this, so no I didn't ignore it last year.

Umm, I just reported my overall losses on the tax return, because figuring out all the trades is basically impossible. So I just did the best I could do to figure out my net gain/loss, and reported that to the IRS. I do remember getting a document from Coinbase saying how I had a $2.2 million volume, but that's got nothing to do with my net gain/loss obviously. Apparently the IRS takes that as profit though ha.

So you didn't file a Schedule D? Uh oh.

I'm pretty sure since your Schedule D didn't match what Coinbase reported, they assumed Coinbase reported correctly and that everything had a cost basis of $0. Or something along those lines.

This letter says to return it either agreeing with their assessment or disagreeing and include a not as to why. So I'll tell them how they obviously screwed up and I guess go from there. I guess this has been a problem for a lot of people since there is that article from last year, hopefully it's an easy fix then.

I would get a tax lawyer and have them respond. You're going to need to amend to report all your Coinbase trading activity.

I mean I'd have to look it up. I don't know what any tax forms means off hand. I just remember I had a loss, cuz I'm still carrying over some of that loss from that year. Apparently it took the IRS two years to decide this ha.

[New_order]

Why are you guys using coinbase? That wallet is not safe because you aren't in control of your funds, why are people so obsessed with coinbase wallet? You are given nothing but your mail and password, no access to recovery seed or private keys, this is 💯 bad for any crypto users, it seems some don't understand centralized vs decentralized

[electronicash]

Why are you guys using coinbase? That wallet is not safe because you aren't in control of your funds, why are people so obsessed with coinbase wallet? You are given nothing but your mail and password, no access to recovery seed or private keys, this is 💯 bad for any crypto users, it seems some don't understand centralized vs decentralized

its likely because they were buying btc and other crypto on coinbase. from the begining coinbase is good start to buy btc, its only the time when KYC  started that some of us move away from it.

IRS is the baddest among the government agency, they could take all you have, ruined your life if you dont property deal things.

[thecodebear]

Why are you guys using coinbase? That wallet is not safe because you aren't in control of your funds, why are people so obsessed with coinbase wallet? You are given nothing but your mail and password, no access to recovery seed or private keys, this is 💯 bad for any crypto users, it seems some don't understand centralized vs decentralized

I use coinbase for trading, not for storing my crypto. This thread has nothing to do with coinbase wallets.

[philipma1957]

Why are you guys using coinbase? That wallet is not safe because you aren't in control of your funds, why are people so obsessed with coinbase wallet? You are given nothing but your mail and password, no access to recovery seed or private keys, this is 💯 bad for any crypto users, it seems some don't understand centralized vs decentralized

its likely because they were buying btc and other crypto on coinbase. from the begining coinbase is good start to buy btc, its only the time when KYC  started that some of us move away from it.

IRS is the baddest among the government agency, they could take all you have, ruined your life if you dont property deal things.

  Yep I was in collection for 1.5 years.
I left them because I felt 1 of 3 or 1 of 4 people I was asked to collect from were being unfairly punished.
I did not want to be the one doing it to them.


Back to op

My 2018 Coinbase info was nuts it was so fucked up I spent days trying to understand what they did.
The main problem was coinbase pro and coinbase would double count the money/coins when I would transfer back and forth. Also coinbase and bittrex would double count the coins when I transferred back and forth.

In 2019 I stopped Coinbase pro In 2019 I did almost zero with bittrex. This allowed for far less entries.

[thecodebear]

Why are you guys using coinbase? That wallet is not safe because you aren't in control of your funds, why are people so obsessed with coinbase wallet? You are given nothing but your mail and password, no access to recovery seed or private keys, this is 💯 bad for any crypto users, it seems some don't understand centralized vs decentralized

its likely because they were buying btc and other crypto on coinbase. from the begining coinbase is good start to buy btc, its only the time when KYC  started that some of us move away from it.

IRS is the baddest among the government agency, they could take all you have, ruined your life if you dont property deal things.

  Yep I was in collection for 1.5 years.
I left them because I felt 1 of 3 or 1 of 4 people I was asked to collect from were being unfairly punished.
I did not want to be the one doing it to them.


Back to op

My 2018 Coinbase info was nuts it was so fucked up I spent days trying to understand what they did.
The main problem was coinbase pro and coinbase would double count the money/coins when I would transfer back and forth. Also coinbase and bittrex would double count the coins when I transferred back and forth.

In 2019 I stopped Coinbase pro In 2019 I did almost zero with bittrex. This allowed for far less entries.

Yeah like there was no way I could accurately track my trades, hundreds of trades, sometimes partially selling, sometimes buys partially joining together for sells. Not totally sure the basis for 2018 from trades starting in 2017 and that sold in 2018. Crypto moving between different exchanges. exchanges either shutting down or only providing like a 90 day trading history or something. It was all very "best effort" to figure out my rough net gain/loss. So like if IRS expects me to "prove" what I made it'd be impossible, even more so at this point than back then. I think I was pretty accurate back then with what I put on my taxes because I remember being satisfied at the end that I had done a best effort on this and gotten it as close to being correct as I could, but it was a while of writing numbers down on paper and calculating and making best guesses. Obviously my trading volume is not my profit, but if the burden of proof is to show perfect documents that will be impossible, can't even come close to that.

[suchmoon]

Yeah like there was no way I could accurately track my trades, hundreds of trades, sometimes partially selling, sometimes buys partially joining together for sells. Not totally sure the basis for 2018 from trades starting in 2017 and that sold in 2018. Crypto moving between different exchanges. exchanges either shutting down or only providing like a 90 day trading history or something. It was all very "best effort" to figure out my rough net gain/loss. So like if IRS expects me to "prove" what I made it'd be impossible, even more so at this point than back then. I think I was pretty accurate back then with what I put on my taxes because I remember being satisfied at the end that I had done a best effort on this and gotten it as close to being correct as I could, but it was a while of writing numbers down on paper and calculating and making best guesses. Obviously my trading volume is not my profit, but if the burden of proof is to show perfect documents that will be impossible, can't even come close to that.

Coinbase provides a data export that tracks all that reasonably well. All you need to care about is the cost basis for transfers into Coinbase. And yes, you have to track every cost basis for as long as you have the coins. I still have coins that (in theory) originated in 2014 and if I ever sell them I will have to show the acquisition date in order to claim long term cap gains.

I would strongly suggest talking to an accountant or a tax lawyer ASAP. This is not a trivial amount IRS thinks you owe.

[thecodebear]

Yeah like there was no way I could accurately track my trades, hundreds of trades, sometimes partially selling, sometimes buys partially joining together for sells. Not totally sure the basis for 2018 from trades starting in 2017 and that sold in 2018. Crypto moving between different exchanges. exchanges either shutting down or only providing like a 90 day trading history or something. It was all very "best effort" to figure out my rough net gain/loss. So like if IRS expects me to "prove" what I made it'd be impossible, even more so at this point than back then. I think I was pretty accurate back then with what I put on my taxes because I remember being satisfied at the end that I had done a best effort on this and gotten it as close to being correct as I could, but it was a while of writing numbers down on paper and calculating and making best guesses. Obviously my trading volume is not my profit, but if the burden of proof is to show perfect documents that will be impossible, can't even come close to that.

Coinbase provides a data export that tracks all that reasonably well. All you need to care about is the cost basis for transfers into Coinbase. And yes, you have to track every cost basis for as long as you have the coins. I still have coins that (in theory) originated in 2014 and if I ever sell them I will have to show the acquisition date in order to claim long term cap gains.

I would strongly suggest talking to an accountant or a tax lawyer ASAP. This is not a trivial amount IRS thinks you owe.

Yeah I know Coinbase tracks it, but some stuff from that year was transferred between exchanges, traded on those exchanges, transferred back, and those exchanges don't keep that trading info. And since all of that stuff eventually went back to coinbase I can't possibly get an accurate record of cost basis even just on Coinbase. When I did my taxes I had more info from that year available to me than I would have now, so I did my best effort to figure out my capital loss from that year. If I have to "prove" my trades now, just based on what data Coinbase provides, it will no doubt be far less accurate than what I calculated myself back then.

Anyway I'm looking into trying to figure out what I can based on my historical data from Coinbase. I'll see what I can come up with.


Quick question. When Coinbase calculates user volume, they calculate buying and selling right? Summing the two to get a user's volume?

[Fortify]

Coinbase looks like they are scrambling around at the moment, after they have been the primary exchange with no verification process for such a long time. They must have millions of transactions processed to date and have effectively acted like a financial institution without taking many precautions on their client base. Only a couple weeks ago, after using them for over 5 years, did they finally seem to activate an extensive verification process on my account and that was when I gave up on ever wanting to use them again. There are much more convenient places to go, but they are going to lose a large chunk of their customer base now.

[exstasie]

Coinbase provides a data export that tracks all that reasonably well. All you need to care about is the cost basis for transfers into Coinbase. And yes, you have to track every cost basis for as long as you have the coins. I still have coins that (in theory) originated in 2014 and if I ever sell them I will have to show the acquisition date in order to claim long term cap gains.

I would strongly suggest talking to an accountant or a tax lawyer ASAP. This is not a trivial amount IRS thinks you owe.

Yeah I know Coinbase tracks it, but some stuff from that year was transferred between exchanges, traded on those exchanges, transferred back, and those exchanges don't keep that trading info. And since all of that stuff eventually went back to coinbase I can't possibly get an accurate record of cost basis even just on Coinbase.

Coinbase couldn't track your cost basis if they wanted to, for that exact reason. They have no idea what happened with all those external transfers. This is probably why they don't report with Form 1099-B. Unfortunately, this stuff is 100% on us to track.

In fact, for 2020 they have decided not to issue any 1099 at all. No more 1099-K either: https://help.coinbase.com/en/pro/taxes-reports-and-financial-services/taxes/1099-k-tax-forms-faq-for-coinbase-pro-prime-merchant

Maybe because of problems like this.

When I did my taxes I had more info from that year available to me than I would have now, so I did my best effort to figure out my capital loss from that year. If I have to "prove" my trades now, just based on what data Coinbase provides, it will no doubt be far less accurate than what I calculated myself back then.

Anyway I'm looking into trying to figure out what I can based on my historical data from Coinbase. I'll see what I can come up with.

How about your wallets? Other exchanges? The problem is that if you can't provide history supporting the actual cost basis, the IRS will always assume the lowest possible basis and the maximum liability.

Quick question. When Coinbase calculates user volume, they calculate buying and selling right? Summing the two to get a user's volume?

It's supposed to be "gross proceeds" which means cash received from the sale of property, but I believe they report by cumulative transaction volume. You should be able to verify by comparing your 1099-K to your Coinbase history.

[thecodebear]

Coinbase provides a data export that tracks all that reasonably well. All you need to care about is the cost basis for transfers into Coinbase. And yes, you have to track every cost basis for as long as you have the coins. I still have coins that (in theory) originated in 2014 and if I ever sell them I will have to show the acquisition date in order to claim long term cap gains.

I would strongly suggest talking to an accountant or a tax lawyer ASAP. This is not a trivial amount IRS thinks you owe.

Yeah I know Coinbase tracks it, but some stuff from that year was transferred between exchanges, traded on those exchanges, transferred back, and those exchanges don't keep that trading info. And since all of that stuff eventually went back to coinbase I can't possibly get an accurate record of cost basis even just on Coinbase.

Coinbase couldn't track your cost basis if they wanted to, for that exact reason. They have no idea what happened with all those external transfers. This is probably why they don't report with Form 1099-B. Unfortunately, this stuff is 100% on us to track.

In fact, for 2020 they have decided not to issue any 1099 at all. No more 1099-K either: https://help.coinbase.com/en/pro/taxes-reports-and-financial-services/taxes/1099-k-tax-forms-faq-for-coinbase-pro-prime-merchant

Maybe because of problems like this.

When I did my taxes I had more info from that year available to me than I would have now, so I did my best effort to figure out my capital loss from that year. If I have to "prove" my trades now, just based on what data Coinbase provides, it will no doubt be far less accurate than what I calculated myself back then.

Anyway I'm looking into trying to figure out what I can based on my historical data from Coinbase. I'll see what I can come up with.

How about your wallets? Other exchanges? The problem is that if you can't provide history supporting the actual cost basis, the IRS will always assume the lowest possible basis and the maximum liability.

Quick question. When Coinbase calculates user volume, they calculate buying and selling right? Summing the two to get a user's volume?

It's supposed to be "gross proceeds" which means cash received from the sale of property, but I believe they report by cumulative transaction volume. You should be able to verify by comparing your 1099-K to your Coinbase history.

Yes that is indeed a problem haha.

I'm writing a script now to parse through my Coinbase trades for that year and calculate the sum buys and sells and see where that gets me as a start.

[dezoel]

I am pretty sure as long as you can print out the transactions and trades and show IRS that it wasn't the amount of money you profited, it was the amount you traded and you have actually lost money, they will understand and remove all the debt you owe to them.

It will not be simple, it will take maybe some months even over a year before they could actually understand and basically.. care really. Because the hardest part of dealing with IRS is that they give you a paper saying how much you owe, in that regard they work but realize that they have sent you this 5 days ago when in reality you have done this in 2018 according to what you are saying, so they were 2 years late to give you what you owe, which shows how slow they actually work. It means when you want to correct things mistake, you might have to wait just as long as well since they are very slow. One way or another, even though it takes a long time, you will probably get it fixed.