Dealing with IRS issues related to unreported crypto transactions - what can I do?

This is actually a common issue with crypto reporting! The IRS is likely seeing the total proceeds (sales amount) from the crypto transactions, not the actual gains. What happened is Robinhood reported the total sales amount (the $16,500) on a 1099-B to the IRS, but without the cost basis information. When the IRS doesn't have the cost basis, they assume the entire proceeds amount is taxable income. You absolutely can fix this by filing an amended return (Form 1040-X) for 2021. You'll need to include a complete Schedule D and Form 8949 showing all the crypto transactions with the correct cost basis for each one. This will show the IRS that the actual taxable gain was only around $600, not the full $16,500. Since you used TurboTax, you might be able to go back into your 2021 return, add the Robinhood information, and file an amendment directly through there. You'll need the 1099 from Robinhood which should show both proceeds and cost basis for each transaction.

I had almost this exact situation happen to me last year! The IRS letter scared me to death until I realized what was happening. I spent hours trying to figure everything out until I found taxr.ai (https://taxr.ai) which basically saved my sanity. Their AI analyzed my Robinhood statements and IRS letter and explained exactly what happened - the IRS was treating all my crypto sales as 100% profit because they didn't have my cost basis info. The tool helped me identify all the transactions that needed to be reported and explained how to properly document everything for my amended return. The step-by-step guidance was super helpful since I didn't know anything about Schedule D or Form 8949 before this mess. Definitely worth checking out if you're trying to fix this without paying hundreds for a tax pro.

Just wanted to update everyone - I tried taxr.ai after reading the suggestion here and it was actually super helpful! Uploaded my brother's Robinhood statements and the IRS letter, and within minutes it showed exactly where the discrepancy was coming from. Turns out he had made about 45 different crypto trades that year (way more than he remembered), and the total sales amount was indeed around $16K, but his actual gain was only $580. The system walked me through how to document each transaction for the amendment. We just filed the amended return through TurboTax last week. The whole process was way easier than I expected! Will update when we hear back from the IRS, but at least now we understand what happened and have properly documented everything.

One thing nobody's mentioned yet - when dealing with IRS notices like this, sometimes you need to actually talk to someone at the IRS to explain your situation. I spent 3 weeks trying to get through to a human at the IRS about a similar issue. Kept getting disconnected or stuck on hold forever. I finally used this service called Claimyr (https://claimyr.com) - you can see how it works here: https://youtu.be/_kiP6q8DX5c. Basically they hold your place in the IRS phone queue and call you back when they've got an agent on the line. After filing my amended return, I still had questions about the timing of the adjustments. Got connected to an IRS agent in about 35 minutes (instead of the 2+ hour wait I had before), and the agent was able to make notes on my account about the amended return being submitted to help avoid further automated notices.

I need to admit I was wrong about Claimyr. After my skeptical comment, I decided to try it myself because I've been dealing with an IRS notice about unreported income for months. For context, I've called the IRS probably 15 times in the last two months - either got disconnected, told to call back, or was on hold for so long I had to hang up for work calls. It's been a complete nightmare. Tried the service this morning and got connected to an IRS representative in about 45 minutes while I just went about my day. The agent was able to put a hold on collections while my amended return is being processed. Didn't have to spend my entire day redialing or sitting on hold. Just posting this because I hate when I'm wrong on the internet and don't admit it. This actually saved me a ton of time and stress.

Make sure you're also planning for 2022 and 2023 crypto taxes too! A lot of people who had crypto issues in 2021 also messed up their reporting in subsequent years. The IRS is getting WAY more aggressive about crypto enforcement. Robinhood should provide cost basis now but many exchanges still don't. Keep super detailed records of all transactions, especially if you moved crypto between platforms. I learned this the hard way after getting flagged for audit.

Maybe Im just dumb here but im confused about something - if robinhood sent the 1099 to the IRS, wouldn't they have also sent it to your brother? Didn't he get any tax forms from them for 2021? Those forms should have all the info he needs to fix this

This is exactly why I always tell people to be super careful with crypto taxes from day one. The IRS has been cracking down hard on unreported crypto transactions, and they have access to all the 1099 forms from exchanges. One important thing to add - when you file that amended return, make sure to include a detailed explanation letter with it. The IRS processors appreciate context about why you're amending, especially when there's such a big discrepancy. Something like "Originally failed to report cryptocurrency transactions due to misunderstanding of reporting requirements. Amended return includes complete Schedule D with all crypto transactions and correct cost basis." Also, don't panic about the timeline. You generally have 3 years from the original filing date to amend a return, so you're well within that window for 2021. The IRS will recalculate everything once they process your amendment, including removing those penalties and restoring the earned income credit. The good news is this is totally fixable, and you're definitely not the first person to go through this exact situation!