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Showing posts with label IRS audit. Show all posts
Showing posts with label IRS audit. Show all posts

Crypto Tax Attorney vs CPA — Which Do You Actually Need?

Crypto Tax Attorney vs CPA — Which Do You Actually Need?

Written by Davit Cho | Crypto Tax Specialist | CEO at JejuPanaTek (2012~)

Credentials Patent Holder (Patent #10-1998821) | 7+ years crypto investing since 2017 | Personally filed crypto taxes since 2018

Verification Based on IRS Official Publications, Gordon Law Resources, TurboTax Professional Guidelines, CryptoTaxAudit Expert Analysis

Published December 30, 2025 Last Updated December 30, 2025

Sponsorship None Contact davitchh@gmail.com

LinkedIn linkedin.com/in/davit-cho-crypto | Blog legalmoneytalk.blogspot.com

 

CPA vs tax attorney comparison infographic for crypto investors 2026

πŸ”₯ The $200,000 Mistake: Choosing the Wrong Professional

 

A crypto investor I know received IRS Letter 6173 last year. He panicked and called a general CPA who charged $500 to review his situation. The CPA told him to just pay what the IRS demanded. Six months later, he discovered he could have challenged the notice and reduced his liability by over $80,000. By then, it was too late. 😰

 

Another investor went the opposite direction. She hired an expensive tax attorney for $400 per hour to prepare her annual crypto tax return. After 15 hours of work and a $6,000 bill, she realized a crypto-specialized CPA could have done the same job for $1,500. She chose the wrong professional for her situation.

 

These stories illustrate the critical importance of understanding when you need a CPA versus when you need a tax attorney. The wrong choice can cost you tens of thousands of dollars in unnecessary fees or missed opportunities to reduce your tax liability. In the worst cases, choosing incorrectly during an IRS audit can result in criminal exposure that could have been avoided.

 

With the new Form 1099-DA reporting requirements now in effect and IRS enforcement intensifying in 2026, more crypto investors than ever will need professional help. Understanding the difference between these two types of professionals, and knowing exactly when to use each, could be the most valuable knowledge you gain this year.

 

πŸ“Š Quick Decision Matrix

Situation CPA Tax Attorney
Annual tax filing ✅ Best choice ❌ Overkill
Tax planning strategy ✅ Best choice ⚠️ For complex cases
IRS Letter 6173/6174 ⚠️ Simple cases only ✅ Recommended
Full IRS audit ❌ Not sufficient ✅ Essential
Fraud allegations ❌ Cannot help ✅ Mandatory
Tax Court representation ❌ Not authorized ✅ Only option

 

I have worked with both CPAs and tax attorneys over my years in crypto investing. When I first started, I made the mistake of using a general accountant who had no idea how to handle DeFi transactions or NFT sales. The errors on my return nearly triggered an audit. Since then, I have learned exactly when to use each type of professional, and that knowledge has saved me significant money and stress.

 

This guide breaks down everything you need to know about choosing between a crypto CPA and a tax attorney. You will learn exactly what each professional does, when to hire them, how much they cost, and how to find qualified professionals who actually understand cryptocurrency. By the end, you will be able to make confident decisions about your own tax situation.

 

πŸ“‹ "Already received an IRS notice about crypto?"
Check official IRS guidance immediately

 

⚖️ CPA vs Tax Attorney: Key Differences Explained

 

Understanding the fundamental differences between CPAs and tax attorneys is essential before deciding which one to hire. These are completely different professions with different training, different capabilities, and different legal authorities. Using the wrong one for your situation is like going to a dentist for heart surgery. They are both doctors, but they do very different things. πŸ₯

 

A Certified Public Accountant is a financial professional who has passed the CPA exam and met state licensing requirements. CPAs specialize in accounting, financial reporting, and tax preparation. They are trained to work with numbers, create accurate financial statements, and ensure your tax returns comply with IRS requirements. When it comes to crypto, a good CPA can calculate your gains and losses, determine cost basis, and prepare all necessary tax forms.

 

A tax attorney is a lawyer who has completed law school and specializes in tax law. Tax attorneys understand the legal framework behind taxation, can represent you in court, and are authorized to provide legal advice. They can negotiate with the IRS on your behalf, defend you against fraud allegations, and handle complex legal matters that go beyond simple tax preparation.

 

One critical difference is attorney-client privilege. When you hire a tax attorney, your communications are protected by law. The IRS cannot force your attorney to reveal what you discussed. This privilege does not exist with CPAs. If you tell your CPA about unreported income or potential fraud, they could be compelled to share that information with the IRS. This distinction becomes extremely important if you have any concerns about past compliance.

 

πŸ“‹ Professional Comparison

Factor CPA Tax Attorney
Education Accounting degree + CPA exam Law degree + Bar exam
Primary Focus Numbers and compliance Legal strategy and defense
Tax Preparation ✅ Primary service ⚠️ Can do but expensive
IRS Representation ✅ Administrative only ✅ Full including Tax Court
Legal Advice ❌ Cannot provide ✅ Authorized
Attorney-Client Privilege ❌ No protection ✅ Full protection
Typical Hourly Rate $50-$500 $300-$700+

 

Both CPAs and tax attorneys can represent you before the IRS, but their authority differs significantly. CPAs can handle correspondence audits, respond to notices, and negotiate with IRS agents during administrative proceedings. However, only tax attorneys can represent you in US Tax Court if your case escalates to litigation. If there is any chance your situation could end up in court, you need an attorney from the start.

 

The scope of advice each professional can provide also differs dramatically. CPAs can tell you how to report your crypto transactions and calculate your tax liability. Tax attorneys can advise you on legal strategies to minimize taxes, structure transactions for optimal tax treatment, and defend positions that might be challenged by the IRS. If you are simply trying to file an accurate return, a CPA is sufficient. If you need strategic legal advice, you need an attorney.

 

In the crypto space, the distinction becomes even more important because the regulatory landscape is constantly evolving. A crypto-specialized CPA stays current on reporting requirements and can handle most routine situations. A tax attorney who specializes in cryptocurrency understands the legal gray areas, emerging case law, and can defend aggressive positions if challenged. The complexity of your situation determines which professional you need.

 

 

[IMAGE 1 PLACEMENT]

Professional comparison infographic showing CPA vs Tax Attorney roles and responsibilities

 

πŸ“Š When You Need a Crypto CPA

 

For most crypto investors, a qualified CPA is the right choice for routine tax matters. CPAs are cost-effective, skilled at handling complex calculations, and can ensure your returns are filed accurately and on time. If your primary need is getting your crypto taxes done correctly without legal complications, a crypto-specialized CPA is your best option. πŸ’Ό

 

Annual tax preparation is the most common reason to hire a crypto CPA. They can import your transaction history from exchanges, calculate gains and losses using appropriate methods like FIFO or specific identification, and prepare Form 8949 and Schedule D accurately. A good crypto CPA understands the nuances of DeFi transactions, NFT sales, staking rewards, and mining income that confuse general accountants.

 

Tax planning throughout the year is another area where CPAs excel. They can advise you on tax-loss harvesting opportunities, help you understand the tax implications of planned transactions, and suggest timing strategies to minimize your liability. Regular consultation with a crypto CPA can save you significant money by helping you make informed decisions before you execute trades.

 

Cost basis tracking is a particularly valuable service that crypto CPAs provide. With the new wallet-by-wallet tracking requirements taking effect in 2026, accurate cost basis records are more important than ever. A crypto CPA can help you establish and maintain proper records, reconcile data from multiple exchanges, and ensure your cost basis calculations will withstand IRS scrutiny.

 

✅ Ideal Situations for a Crypto CPA

Situation Why CPA Works Expected Cost
Annual tax filing Primary expertise area $500-$3,000
DeFi/NFT reporting Complex calculations needed $1,000-$5,000
Cost basis reconstruction Accounting expertise required $1,500-$10,000
Year-round tax planning Ongoing advisory relationship $200-$500/hour
Amended returns Correcting prior filings $500-$2,000/year
CP2000 response (simple) Documentation and calculation $500-$2,000

 

Responding to simple IRS notices like Letter 6174-A or straightforward CP2000 discrepancies often falls within a CPA's capabilities. If the issue is purely mathematical, such as the IRS calculating different gains based on incorrect cost basis assumptions, a CPA can prepare the response with supporting documentation. They can calculate the correct amounts, prepare explanation letters, and submit the response on your behalf.

 

Business structure decisions for crypto ventures is another area where CPAs add value. If you are a serious trader or miner, a CPA can help you determine whether an LLC, S-Corp, or other entity structure makes sense for your situation. They understand the tax implications of different structures and can model scenarios to show you the potential savings from each option.

 

Quarterly estimated tax payments often confuse crypto investors because income varies significantly based on market conditions. A crypto CPA can help you calculate appropriate quarterly payments based on your projected annual liability, ensuring you avoid underpayment penalties while not overpaying unnecessarily. They can adjust these calculations as your situation changes throughout the year.

 

The key indicator that a CPA is sufficient for your needs is the absence of legal risk. If you have been filing returns honestly, have no unreported income, and are not facing fraud allegations, a CPA can handle virtually all your crypto tax needs. The moment legal risk enters the picture, however, you need to consider upgrading to an attorney.

 

πŸ’» "Need help calculating your crypto gains?"
Start with proper tax software

 

⚠️ When You Must Hire a Tax Attorney

 

There are situations where a tax attorney is not just recommended but absolutely essential. Using a CPA when you need an attorney can result in catastrophic outcomes including criminal prosecution, massive penalties, and even prison time. Understanding when to escalate to legal representation could be the most important tax decision you ever make. ⚖️

 

IRS Letter 6173 is a major red flag that suggests you should consult a tax attorney. This letter indicates the IRS believes you failed to report virtual currency transactions, which implies potential fraud allegations. While a CPA might be able to handle simple discrepancies, the serious tone of Letter 6173 and its potential to escalate to criminal investigation means attorney involvement is strongly recommended.

 

Any situation involving unreported income requires immediate attorney consultation. If you failed to report crypto gains, did not disclose foreign exchange accounts, or have other undisclosed taxable transactions, the attorney-client privilege becomes critical. You can discuss your full situation with an attorney without fear that information will be shared with the IRS. This protection does not exist with a CPA.

 

Fraud allegations or criminal investigation demands attorney representation immediately. If you receive any indication that the IRS is investigating you for tax fraud, evasion, or other criminal matters, stop talking to anyone except an attorney. Criminal tax cases can result in prison sentences of up to five years per count. This is not the time to save money on professional fees.

 

🚨 Must-Have Attorney Situations

Situation Why Attorney Required Risk Level
IRS Letter 6173 Potential fraud implications High
Unreported income Need attorney-client privilege High
Fraud allegations Criminal defense needed Critical
Criminal investigation Prison risk Critical
Tax Court case Only attorneys can represent High
Liability over $1 million Stakes too high for CPA alone High
Offshore accounts Complex legal requirements High

 

Tax Court representation is exclusively the domain of attorneys. If your IRS dispute cannot be resolved administratively and proceeds to Tax Court, only an attorney can represent you. CPAs, enrolled agents, and other tax professionals are not authorized to appear in Tax Court. If there is any possibility your case could end up in court, involving an attorney early gives you strategic advantage.

 

Undisclosed foreign accounts including offshore crypto exchanges trigger complex legal requirements under FBAR and FATCA. The penalties for failing to disclose foreign accounts can be devastating, potentially exceeding the value of the accounts themselves. A tax attorney can help you navigate voluntary disclosure programs and minimize penalties while ensuring compliance going forward.

 

When potential liability exceeds $1 million, the stakes are simply too high to rely solely on a CPA. At this level, you need legal strategy, negotiation expertise, and the ability to defend aggressive positions. Tax attorneys who specialize in high-stakes cases understand how to structure settlements, negotiate with IRS counsel, and protect your interests at every stage.

 

Complex estate planning involving crypto assets often requires attorney involvement. While a CPA can help with the tax calculations, an attorney is needed to create trusts, draft wills that properly address digital assets, and ensure your estate plan actually accomplishes your goals. The legal documents involved require attorney preparation to be valid and enforceable.

 

When I think about it, the general rule is simple. If your situation involves any legal risk, potential penalties for fraud, or complex legal structures, you need a tax attorney. The cost of an attorney is always less than the cost of prison or six-figure penalties that could have been avoided with proper legal representation.

 

 

πŸ’° Real Costs: What to Expect in 2026

 

Understanding the true cost of crypto tax professionals helps you budget appropriately and avoid sticker shock. Prices vary significantly based on the complexity of your situation, the professional's experience, and geographic location. Here is what you can realistically expect to pay in 2026 for quality crypto tax services. πŸ’΅

 

Crypto CPAs typically charge between $50 and $500 per hour depending on their expertise and location. Many offer flat-fee packages for tax preparation that range from $500 for simple returns to $5,000 or more for complex situations involving DeFi, multiple exchanges, and hundreds of transactions. The most experienced crypto-specialized CPAs command premium rates but often deliver better results.

 

Tax attorneys generally charge $300 to $700 per hour, with top specialists in major cities charging even more. For specific services, expect flat fees ranging from $1,000 for simple consultations to $10,000 or more for audit representation per tax year. A full three-year crypto audit defense can cost $50,000 to $200,000 or more depending on complexity and the amounts involved.

 

The cost of IRS audit representation varies dramatically based on the type of audit. A simple correspondence audit might cost $1,500 to $3,000 for CPA representation. A complex field audit can run $5,000 to $15,000 per year. If your case involves potential fraud or goes to Tax Court, legal fees can easily exceed $100,000. The cost is high, but the stakes are often much higher.

 

πŸ’² 2026 Cost Comparison

Service Crypto CPA Tax Attorney
Hourly Rate $50-$500 $300-$700+
Simple Tax Return $500-$1,500 $2,000-$5,000
Complex Tax Return (DeFi/NFT) $2,000-$5,000 $5,000-$15,000
IRS Notice Response $500-$2,000 $1,500-$5,000
Correspondence Audit $1,500-$3,000 $3,000-$7,000
Field Audit (per year) $5,000-$15,000 $10,000-$30,000
Tax Court Representation ❌ Not authorized $25,000-$100,000+

 

Geographic location significantly impacts pricing. CPAs and attorneys in New York, San Francisco, and Los Angeles typically charge 50 to 100 percent more than those in smaller markets. However, many crypto tax professionals work remotely, allowing you to hire specialists from lower-cost areas regardless of where you live. Remote work has expanded your options considerably.

 

Many firms offer tiered pricing based on transaction volume. A CPA might charge $500 for clients with fewer than 100 transactions, $1,500 for 100 to 500 transactions, and $3,000 or more for 500 plus transactions. Understanding your transaction count before seeking quotes helps you get accurate estimates and compare options effectively.

 

The cost of doing nothing is often far higher than professional fees. Missing deductions, making calculation errors, or failing to respond properly to IRS notices can result in paying thousands more in taxes than necessary. A $2,000 CPA fee that saves you $10,000 in taxes or prevents a $50,000 audit liability is money extremely well spent.

 

Many professionals offer free initial consultations to assess your situation. Take advantage of these consultations to understand your needs, get fee estimates, and evaluate whether the professional is a good fit. Never commit to significant fees without first understanding exactly what services will be provided and what outcomes you can expect.

 

 

[IMAGE 2 PLACEMENT]

Cost comparison chart showing CPA vs Attorney fees for different crypto tax services

 

πŸ” How to Find the Right Crypto Tax Professional

 

Finding a qualified crypto tax professional is more challenging than finding a general accountant or attorney. The crypto space is relatively new, and many traditional tax professionals lack the specialized knowledge required. Hiring someone who does not truly understand cryptocurrency can result in costly errors and missed opportunities. Here is how to find the right professional for your needs. 🎯

 

Crypto-specific experience is the most important qualification to verify. Ask potential professionals how many crypto clients they have served, what types of transactions they have handled, and whether they stay current on IRS guidance. A qualified crypto CPA should be familiar with Form 8949 reporting, cost basis methods, DeFi taxation, NFT classification, and the new 1099-DA requirements.

 

Verify credentials before hiring anyone. For CPAs, check their license status with your state board of accountancy. For attorneys, verify their bar membership and check for any disciplinary history. Both types of professionals should be in good standing with no significant complaints or sanctions. This basic due diligence can prevent major problems down the road.

 

Ask about their technology stack and how they handle crypto data. A modern crypto tax professional should use specialized software like Koinly, CoinTracker, or TaxBit to import and analyze your transactions. If they plan to manually enter data from exchange reports, that is a red flag indicating they may not have the tools needed to handle complex crypto situations efficiently.

 

🎯 Questions to Ask Before Hiring

Question Good Answer Red Flag
How many crypto clients? 50+ with specific examples A few or vague answer
Familiar with DeFi? Yes with specific protocols What is DeFi?
What software do you use? Koinly, CoinTracker, TaxBit Excel only or none
Know 1099-DA rules? Yes with details on 2026 changes Never heard of it
Experience with IRS notices? Multiple successful resolutions No experience
How do you charge? Clear fee structure explained Vague or refuses to quote

 

Referrals from other crypto investors are valuable sources for finding qualified professionals. Ask in crypto communities, on social media, or through professional networks for recommendations. Someone who has successfully navigated a similar situation can point you toward professionals who actually deliver results. Personal referrals often lead to better matches than random searches.

 

Several directories specialize in crypto tax professionals. CoinLedger, Koinly, and other tax software platforms maintain lists of CPAs and attorneys who work with their tools. Professional organizations like the AICPA also have specialist directories. These resources can help you find professionals who have demonstrated commitment to the crypto space.

 

Consider the working relationship beyond just qualifications. You want someone who communicates clearly, responds promptly, and makes you feel comfortable asking questions. Tax matters are stressful enough without dealing with a professional who is difficult to reach or condescending about your level of knowledge. Trust your instincts about personal fit.

 

Get everything in writing before starting work. A clear engagement letter should specify the scope of services, fees, timeline, and responsibilities of both parties. This protects you from unexpected charges and ensures everyone understands what is included. Reputable professionals always provide written agreements before beginning work.

 

πŸ“š "Want to learn more about crypto tax compliance?"
Explore our complete guides

 

Crypto tax professional cost comparison CPA vs attorney fees 2026

❓ FAQ

 

Q1. What is the main difference between a CPA and tax attorney?

 

A1. CPAs focus on accounting, tax preparation, and financial compliance. Tax attorneys focus on legal strategy, court representation, and situations involving legal risk. CPAs handle numbers while attorneys handle legal issues.

 

Q2. Do I need a crypto-specialized professional or will a general one work?

 

A2. Crypto-specialized professionals are strongly recommended. General CPAs and attorneys often lack knowledge of DeFi, NFTs, staking, and crypto-specific reporting requirements. Mistakes from inexperience can be costly.

 

Q3. How much does a crypto CPA cost for annual tax preparation?

 

A3. Expect to pay $500 to $1,500 for simple returns and $2,000 to $5,000 or more for complex situations involving DeFi, NFTs, or hundreds of transactions. Prices vary by location and experience.

 

Q4. What is attorney-client privilege and why does it matter?

 

A4. Attorney-client privilege protects your communications with an attorney from disclosure. The IRS cannot force your attorney to reveal what you discussed. This protection does not exist with CPAs, which matters if you have unreported income or compliance concerns.

 

Q5. When should I hire a tax attorney instead of a CPA?

 

A5. Hire an attorney if you have unreported income, face fraud allegations, are under criminal investigation, need Tax Court representation, have liability over $1 million, or have undisclosed foreign accounts.

 

Q6. Can a CPA represent me in an IRS audit?

 

A6. Yes, CPAs can represent you in administrative audits including correspondence audits and field audits. However, only attorneys can represent you in Tax Court if your case escalates to litigation.

 

Q7. How much does IRS audit representation cost?

 

A7. CPA representation for a correspondence audit costs $1,500 to $3,000. Field audits run $5,000 to $15,000 per year. Attorney representation is typically 50 to 100 percent more. Complex cases can exceed $100,000 total.

 

Q8. Should I use crypto tax software or hire a professional?

 

A8. For simple situations with straightforward trades, software alone may suffice. For DeFi, NFTs, high volume trading, or any compliance concerns, professional review is recommended. Many investors use both.

 

Q9. What questions should I ask before hiring a crypto tax professional?

 

A9. Ask about their crypto client count, familiarity with DeFi and NFTs, software tools used, knowledge of 1099-DA rules, experience with IRS notices, and fee structure. Verify their credentials with licensing boards.

 

Q10. Can I switch from a CPA to an attorney mid-case?

 

A10. Yes, you can switch professionals at any time. However, switching mid-audit can cause delays and additional costs. If you realize you need an attorney, make the switch as early as possible.

 

Q11. Do tax attorneys also prepare tax returns?

 

A11. Yes, tax attorneys can prepare returns, but it is typically more expensive than using a CPA for the same work. Attorneys are better suited for legal strategy while CPAs excel at routine preparation.

 

Q12. What is an enrolled agent and how do they compare?

 

A12. Enrolled agents are IRS-licensed tax professionals who can represent taxpayers. They fall between general preparers and CPAs in capability. For complex crypto situations, a crypto-specialized CPA or attorney is generally preferred.

 

Q13. How do I verify a CPA's credentials?

 

A13. Check with your state board of accountancy. Most have online verification tools. Confirm the license is active and in good standing with no disciplinary actions.

 

Q14. How do I verify a tax attorney's credentials?

 

A14. Check with your state bar association. Verify they are admitted to practice, in good standing, and have no significant disciplinary history. Many bars have online lookup tools.

 

Q15. Can I hire someone from another state?

 

A15. CPAs can often work across state lines for federal tax matters. Attorneys are more restricted by state licensing. Many crypto tax professionals work remotely and serve clients nationwide.

 

Q16. What if I cannot afford professional help?

 

A16. Use crypto tax software like Koinly or CoinTracker for basic calculations. The IRS offers free filing options for simple returns. Low Income Taxpayer Clinics provide free help for those who qualify.

 

Q17. Should I hire both a CPA and attorney?

 

A17. For complex situations, yes. A CPA handles the accounting and preparation while an attorney provides legal strategy and protection. Many firms offer both services or work together on client matters.

 

Q18. How far in advance should I hire a tax professional?

 

A18. For annual preparation, contact professionals in January or February before they get booked up. For audit representation or urgent matters, hire immediately. Tax planning should be ongoing throughout the year.

 

Q19. What documents should I prepare before meeting with a professional?

 

A19. Gather all exchange transaction histories, wallet addresses, 1099 forms received, prior year returns, any IRS correspondence, and documentation of your cost basis for crypto holdings.

 

Q20. Can a professional help me with past unfiled returns?

 

A20. Yes, both CPAs and attorneys can help prepare delinquent returns. If there is significant unreported income, consult an attorney first due to attorney-client privilege protection.

 

Q21. What if my CPA made errors on my return?

 

A21. You can file an amended return to correct errors. If the errors caused significant harm, you may have a malpractice claim. Consult an attorney if you believe professional negligence occurred.

 

Q22. Do professionals guarantee their work?

 

A22. Most reputable professionals guarantee accuracy and will correct errors at no charge. Some offer audit protection where they represent you free if their work triggers an audit. Ask about guarantees before hiring.

 

Q23. How do retainer agreements work with tax attorneys?

 

A23. Attorneys typically require an upfront retainer that they bill against hourly. When the retainer depletes, you replenish it. Unused portions are typically refunded when the engagement ends.

 

Q24. Can I negotiate professional fees?

 

A24. Yes, especially for larger engagements. Ask about flat-fee arrangements, payment plans, or discounts for upfront payment. Getting multiple quotes gives you negotiating leverage.

 

Q25. What red flags indicate a bad crypto tax professional?

 

A25. Red flags include guaranteeing specific results, promising to eliminate legitimate tax debt, lack of proper credentials, refusal to provide written agreements, and inability to explain their approach clearly.

 

Q26. Should I tell my professional about all my crypto activities?

 

A26. Yes, complete disclosure is essential for accurate advice. If you have concerns about privilege, consult an attorney first. Incomplete information leads to incomplete advice and potential problems.

 

Q27. How often should I consult with a tax professional?

 

A27. At minimum, annually for tax preparation. Active traders should consult quarterly for tax planning. Before any major transaction like selling significant holdings, consult first to understand tax implications.

 

Q28. Can a professional help me reduce an existing tax bill?

 

A28. If errors were made on prior returns, yes. They can also help negotiate payment plans, pursue offers in compromise, or challenge incorrect IRS assessments. Results depend on your specific situation.

 

Q29. What is the difference between tax planning and tax preparation?

 

A29. Tax preparation is filing your return after the year ends. Tax planning is making strategic decisions throughout the year to minimize taxes. Both CPAs and attorneys offer planning services.

 

Q30. Where can I find reputable crypto tax professionals?

 

A30. Check directories on crypto tax software sites like Koinly and CoinLedger, ask for referrals in crypto communities, search professional organization directories, and verify credentials before hiring anyone.

 

 

Disclaimer

This article is for informational purposes only and does not constitute legal, tax, or financial advice. The decision between hiring a CPA or tax attorney depends on your individual circumstances. Always consult with qualified professionals before making decisions about your tax situation. The author and publisher are not responsible for any actions taken based on this content.

Image Disclaimer

Some images in this article may be AI-generated or alternative images used for illustrative purposes. Professional credentials and services should be verified directly with licensing authorities and individual practitioners.

 

Tags: Crypto Tax Attorney, Crypto CPA, Tax Professional, IRS Audit, Tax Planning, Crypto Tax Help, Tax Attorney vs CPA, Crypto Accountant, Tax Representation, Crypto Compliance

IRS Crypto Letter 6173 Response Guide — What to Do Before It Becomes an Audit

IRS Crypto Letter 6173 Response Guide — What to Do Before It Becomes an Audit

Written by Davit Cho | Crypto Tax Specialist | CEO at JejuPanaTek (2012~)

Credentials Patent Holder (Patent #10-1998821) | 7+ years crypto investing since 2017 | Personally filed crypto taxes since 2018

Verification Based on IRS Official Publications, CryptoTaxAudit Guidance, Gordon Law Resources, Official Government Guidelines

Published December 29, 2025 Last Updated December 29, 2025

Sponsorship None Contact davitchh@gmail.com

LinkedIn linkedin.com/in/davit-cho-crypto | Blog legalmoneytalk.blogspot.com

IRS Letter 6173 crypto tax notice response guide 2026

 

Opening your mailbox to find an official IRS letter about cryptocurrency is a moment that stops most investors cold. The envelope looks serious, the language is formal, and suddenly you are questioning every trade you have made over the past several years. If you have received IRS Letter 6173, 6174, 6174-A, or a CP2000 notice related to crypto, you are among thousands of investors now facing increased scrutiny as the IRS ramps up digital asset enforcement.

 

These letters are not phishing scams or random mailings. The IRS has been sending crypto compliance notices since 2019, and the campaign has intensified dramatically in 2025. The agency has gathered transaction data from major exchanges including Coinbase, Kraken, Binance US, and Robinhood through information sharing agreements and blockchain analysis tools. If you received one of these letters, it means the IRS has specific information about your crypto activity and believes there may be reporting discrepancies.

 

When I think about the panic these letters cause, the most important thing to understand is that receiving a letter does not automatically mean you are in trouble. It means the IRS wants you to review your filings and ensure accuracy. How you respond in the next 30 days can mean the difference between a simple clarification and a full-blown audit with penalties, interest, and potential criminal referral in extreme cases.

 

This comprehensive guide explains exactly what each letter type means, provides step-by-step response instructions, identifies the critical mistakes that escalate simple notices into audits, and answers the 30 most common questions crypto investors ask when facing IRS correspondence. Whether you received a soft warning or a notice demanding immediate response, understanding your options protects your wealth and your peace of mind.

 

Why Thousands of Crypto Investors Are Getting IRS Letters in 2025

 

The IRS crypto enforcement campaign represents one of the most significant expansions of tax compliance efforts in decades. Beginning in 2019, the agency sent over 10,000 letters to cryptocurrency holders identified through exchange data and blockchain analysis. That initial wave was just the beginning. In 2025, with new reporting requirements taking effect and enhanced data sharing from exchanges, the volume of compliance letters has increased substantially.

 

The IRS obtains cryptocurrency transaction information through multiple channels. Major exchanges operating in the United States are required to report customer activity through various 1099 forms. Coinbase, Kraken, Gemini, and other platforms have provided transaction data to the IRS for years. The agency also uses sophisticated blockchain analysis tools from companies like Chainalysis to trace transactions across wallets and identify potential tax compliance gaps.

 

The Form 1099-DA requirement beginning in 2026 will dramatically expand the information available to the IRS. Starting with tax year 2025, custodial brokers must report gross proceeds from crypto sales. By 2026, they must also report cost basis information. This means the IRS will have comprehensive transaction data that can be automatically compared against filed tax returns, flagging discrepancies for follow-up.

 

Several factors trigger IRS crypto letters. High transaction volume on exchanges without corresponding tax return reporting is a primary flag. Receiving 1099 forms from exchanges but not reporting the income creates immediate discrepancies in IRS systems. Large transfers between wallets or to foreign exchanges raise additional questions. Even simply having an account at a major exchange can result in receiving an educational letter encouraging compliance review.

 

Common Triggers for IRS Crypto Letters

Trigger How IRS Detects It Likely Letter Type
1099 received but income not reported Automatic matching system CP2000 Notice
High exchange activity, no crypto reported Exchange data sharing Letter 6173
Exchange account exists Exchange customer lists Letter 6174 or 6174-A
Large transfers to foreign exchanges Blockchain analysis Letter 6173
Answered "No" to crypto question incorrectly Return vs exchange data comparison Letter 6173 or CP2000

 

The digital asset question on Form 1040 creates additional exposure. Since 2020, taxpayers must answer whether they received, sold, exchanged, or disposed of digital assets during the year. Answering "No" when you actually had reportable crypto activity creates a false statement on your return. If the IRS later discovers crypto activity through exchange data, the incorrect answer compounds the compliance problem.

 

International exchanges and DeFi activity create particular challenges. While foreign platforms may not report directly to the IRS, the agency uses blockchain analysis to trace fund flows. Transfers from U.S. exchanges to international platforms or DeFi wallets are visible on public blockchains. The IRS has increasingly sophisticated tools to follow these transactions and identify potential unreported activity.

 

The stakes for non-compliance are substantial. Accuracy-related penalties of 20% apply to underpayments due to negligence or substantial understatement. Civil fraud penalties reach 75% of the underpayment. In egregious cases involving willful evasion, criminal prosecution remains possible with penalties including fines and imprisonment. Early response to IRS letters helps prevent escalation to these more serious consequences.

 

Received an IRS letter about crypto?
Understand your rights and obligations first

 

Letter 6173 vs 6174 vs 6174-A — Which One Did You Get?

 

The IRS uses three primary letter types for crypto compliance outreach, each representing a different level of urgency and required response. Understanding which letter you received is the critical first step in determining your appropriate course of action. The letter number appears in the upper right corner of the notice, making identification straightforward once you know what to look for.

 

Letter 6173 is the most serious of the three and requires immediate attention. This letter indicates the IRS believes you have not reported a significant amount of cryptocurrency transactions. It is not merely educational — it signals active IRS scrutiny of your tax situation. Letter 6173 typically requests a response within 30 days and may ask you to sign a statement under penalty of perjury regarding your crypto holdings and reporting. Ignoring this letter significantly increases audit risk.

 

Letter 6174 represents a moderate level of concern. This notice informs you that the IRS has identified you as someone who may not have fully reported cryptocurrency activity. While less aggressive than Letter 6173, it should not be dismissed. The IRS is essentially giving you an opportunity to review and correct your filings before taking further action. Recipients should treat this as a serious prompt to verify their tax reporting accuracy.

 

Letter 6174-A is the mildest version, serving primarily as an educational notice. This letter encourages you to check that past crypto transactions were correctly reported and reminds you of your tax obligations. While it does not require a formal response, receiving it means your crypto activity is now on the IRS radar. Ignoring potential reporting issues at this stage could lead to more serious letters later.

 

IRS Crypto Letter Comparison

Letter Type Severity Response Required What IRS Believes
Letter 6173 High Yes — 30 days Significant unreported transactions
Letter 6174 Medium Recommended May not have fully reported
Letter 6174-A Low No formal response Educational reminder
CP2000 High Yes — 30 days Calculated specific amount owed

 

The language in each letter provides important clues about IRS intentions. Letter 6173 typically includes phrases like "we have information indicating" and "failure to respond may result in examination of your tax return." Letter 6174 uses softer language like "may not have properly reported" and encourages voluntary review. Letter 6174-A focuses on education with reminders about reporting requirements and available resources.

 

All three letters include a statement that the IRS has information indicating you have or had accounts containing virtual currency. This means the agency has received data from exchanges, blockchain analysis, or other sources connecting you to crypto activity. The IRS may not know the full details of your transactions, but they know enough to flag your account for potential compliance issues.

 

Response timelines vary by letter type. Letter 6173 typically provides 30 days to respond, and missing this deadline can trigger automatic escalation. Letters 6174 and 6174-A do not have formal response deadlines, but addressing potential issues promptly remains advisable. The longer compliance problems persist, the more interest and potential penalties accumulate.

 

Verification of letter authenticity is essential before responding. IRS letters arrive by mail from official IRS addresses, not by email or text message. The letter will include your taxpayer identification information and reference specific tax years. If you have any doubt about authenticity, contact the IRS directly using the phone number on IRS.gov, not any number provided in the letter, to verify the correspondence is legitimate.

 

 

CP2000 Notice Explained — The IRS Already Calculated What You Owe

 

Notice CP2000 represents a fundamentally different type of IRS communication than the 6173/6174 letter series. While those letters ask you to review your reporting, a CP2000 notice means the IRS has already compared your tax return against information they received from third parties and calculated a proposed adjustment. The notice specifies exactly how much additional tax, plus interest, the IRS believes you owe.

 

The CP2000 is generated through the IRS Automated Underreporter Program, which systematically compares information returns (like 1099 forms from exchanges) against filed tax returns. When the system identifies a discrepancy — for example, a 1099-B showing crypto sales proceeds that do not appear on your Schedule D — it automatically generates a proposed adjustment notice.

 

A CP2000 is technically not an audit, but it demands the same level of attention. The notice proposes changes to your return and gives you a deadline (typically 30 days) to respond. You can agree with the proposed changes and pay the amount due, disagree and provide documentation supporting your position, or partially agree if some but not all adjustments are correct.

 

The critical issue with crypto-related CP2000 notices is that the IRS typically only has gross proceeds information, not cost basis. This means the proposed adjustment often assumes zero cost basis, treating your entire sales proceeds as taxable gain. If you actually purchased the crypto before selling it, you have cost basis that reduces or eliminates the proposed adjustment. Providing documentation of your actual cost basis is the key to disputing inflated CP2000 calculations.

 

CP2000 Response Options

Response Option When to Use What to Include
Agree in full IRS calculation is correct Signed response form, payment
Disagree in full You have cost basis documentation Response form, explanation, records
Partially agree Some adjustments correct, others not Response form, item-by-item explanation
Request extension Need more time to gather records Written request before deadline

 

IRS statistics reveal that approximately one-third of CP2000 notices do not result in the taxpayer owing additional tax after proper response. This high rate of successful disputes underscores the importance of responding rather than simply accepting the proposed adjustment. Many crypto investors have legitimate cost basis that dramatically reduces or eliminates the proposed tax due.

 

The response process requires careful documentation. Gather exchange records, wallet transaction histories, and any documentation showing your original purchase prices. Calculate your actual gain or loss using proper cost basis methods. Prepare a clear written explanation connecting your documentation to the specific transactions questioned in the CP2000 notice.

 

Ignoring a CP2000 notice triggers automatic assessment of the proposed tax, plus penalties and interest. The IRS will issue a Statutory Notice of Deficiency (90-day letter), after which they can begin collection actions. At that point, your only recourse is filing a petition with the U.S. Tax Court within 90 days. Responding to the initial CP2000 is far simpler and less costly than litigating in Tax Court.

 

IRS CP2000 notice crypto tax response documentation 

Step-by-Step Response Guide — Exactly What to Do

 

Responding to IRS crypto letters requires a systematic approach that addresses the agency's concerns while protecting your interests. The following steps apply whether you received Letter 6173, 6174, 6174-A, or a CP2000 notice. The specific documents and response format will vary, but the overall process remains consistent.

 

Step one is to read the letter carefully and identify exactly what the IRS is asking. Note the letter type, the tax year(s) referenced, the response deadline, and any specific questions or requests. Understand whether the letter requires a formal response (6173, CP2000) or is primarily educational (6174-A). Mark the deadline on your calendar and plan to respond well before it expires.

 

Step two involves gathering all relevant cryptocurrency records. Export complete transaction histories from every exchange you have used during the tax years in question. Retrieve wallet transaction records from blockchain explorers. Compile any documentation of original purchase prices, including bank statements showing fiat transfers to exchanges, email confirmations of purchases, or tax software reports from prior years.

 

Step three requires reviewing your filed tax returns for the years mentioned. Compare what you reported against your actual crypto activity. Identify any discrepancies, whether transactions you failed to report, incorrect calculations, or missing cost basis information. Understanding exactly where your returns may be deficient helps you prepare an appropriate response.

 

IRS Letter Response Checklist

Step Action Documents Needed
1 Read letter, note deadline IRS letter
2 Gather all crypto records Exchange histories, wallet records
3 Review filed returns Prior year tax returns
4 Calculate actual gains/losses Cost basis documentation
5 Prepare written response Response form, explanation letter
6 File amended returns if needed Form 1040-X
7 Send response before deadline Complete package, certified mail

 

Step four involves calculating your actual tax liability using proper cost basis and accounting methods. Use crypto tax software to generate accurate gain and loss calculations. Apply the specific identification method required starting in 2026, or your chosen method for earlier years. Document your methodology clearly so the IRS understands how you arrived at your figures.

 

Step five is preparing your written response. For CP2000 notices, complete the response form indicating whether you agree, disagree, or partially agree. Include a clear explanation letter that walks through each disputed item and references your supporting documentation. For Letter 6173, address each question asked and provide requested documentation.

 

Step six may require filing amended returns. If your review reveals you did underreport crypto income, filing Form 1040-X for affected years demonstrates good faith compliance efforts. Include all previously unreported crypto transactions with proper calculations. Note that amended returns can only be filed for the prior three tax years — as of late 2025, 2021 returns can no longer be amended.

 

Step seven is submitting your response. Send everything by certified mail with return receipt requested to create proof of timely submission. Keep copies of everything you send. For CP2000 responses, you can also use the IRS Document Upload Tool or fax if those options are listed on your notice. Write the notice number on all documents to ensure proper routing.

 

Consider professional assistance for complex situations. If your crypto activity involves significant amounts, multiple years, DeFi transactions, or potential criminal exposure, consulting a crypto-specialized tax attorney or CPA provides valuable protection. Professionals understand IRS procedures, can negotiate on your behalf, and help avoid mistakes that escalate simple notices into serious problems.

 

 

5 Costly Mistakes That Turn Letters Into Audits

 

The difference between resolving an IRS letter quickly and triggering a full audit often comes down to how you respond. Certain mistakes dramatically increase the likelihood of escalation, turning what could have been a simple clarification into months or years of IRS scrutiny. Understanding these pitfalls helps you avoid them.

 

Mistake number one is ignoring the letter entirely. Some taxpayers convince themselves that if they do not respond, the issue will disappear. The opposite is true. Failure to respond to Letter 6173 or CP2000 within the deadline triggers automatic escalation. For CP2000 notices, the proposed tax is assessed by default. For Letter 6173, the IRS may open a formal examination. Ignoring correspondence is the single most reliable way to make your situation worse.

 

Mistake number two is providing incomplete or disorganized documentation. The IRS agent reviewing your response has limited time and many cases to process. If your documentation is scattered, unclear, or missing key information, the agent may simply reject your explanation and proceed with the proposed adjustment. Organize your response clearly, label all documents, and provide a summary that makes it easy to understand your position.

 

Mistake number three is making false statements. When responding to IRS letters, you are communicating with a federal agency under circumstances where false statements can constitute crimes. Never claim you did not have crypto activity if you did. Never fabricate cost basis documentation. Never sign a statement under penalty of perjury that contains inaccurate information. Honest disclosure of mistakes is far better than compounding the problem with additional false statements.

 

Response Mistakes and Consequences

Mistake Why It Happens Consequence
Ignoring the letter Fear, hoping it goes away Automatic assessment, audit
Incomplete documentation Poor records, rushed response Response rejected
False statements Panic, cover-up attempt Criminal referral possible
Oversharing information Trying to be helpful Opens new audit areas
Aggressive or hostile tone Frustration, anger Examiner becomes adversarial

 

Mistake number four is volunteering information beyond what the IRS asked for. While transparency is important, providing information about tax years or issues not mentioned in the letter can open new examination areas. If the IRS asks about 2023 crypto activity, respond only about 2023. Do not volunteer that you also had unreported activity in 2021 and 2022 unless specifically asked. Answer questions completely but do not expand the scope unnecessarily.

 

Mistake number five is responding with an aggressive or hostile tone. The IRS agent processing your case is a person doing a job. Hostile, condescending, or argumentative responses make the agent less inclined to give you the benefit of the doubt on close calls. Professional, respectful communication that focuses on facts and documentation achieves far better results than emotional confrontation.

 

Additional mistakes include missing the response deadline (even by one day), sending documents to the wrong address, and failing to keep copies of everything submitted. These procedural errors can delay resolution and create additional complications. Treat IRS correspondence with the same care you would give any important legal matter.

 

 

How to Prevent Future IRS Letters — Compliance Checklist

 

The best way to handle IRS letters is to never receive them in the first place. Proper crypto tax compliance from the start eliminates the stress, expense, and risk of responding to enforcement correspondence. The following checklist ensures your crypto tax reporting meets IRS expectations and minimizes audit risk going forward.

 

Maintain comprehensive transaction records from day one. Export and save transaction histories from every exchange at least quarterly. Record wallet addresses and transaction hashes for all significant movements. Document the date, amount, and fair market value for every acquisition, whether through purchase, mining, staking, airdrops, or other means. Good records make tax calculation straightforward and provide defense against IRS questions.

 

Use crypto tax software to calculate gains and losses accurately. Tools like Koinly, CoinTracker, CoinLedger, and TaxBit import transaction data from exchanges and wallets, apply proper cost basis methods, and generate IRS-ready reports. The cost of tax software is minimal compared to the potential consequences of incorrect manual calculations.

 

Report all crypto activity on your tax return, even if you received no 1099 forms. The digital asset question on Form 1040 must be answered truthfully. Report capital gains and losses on Schedule D and Form 8949. Report mining, staking, and other crypto income on appropriate schedules. Complete and accurate reporting eliminates discrepancies that trigger IRS letters.

 

Crypto Tax Compliance Checklist

Action Frequency Purpose
Export exchange histories Quarterly Preserve records before data loss
Run tax software calculations Monthly or after large trades Track running tax liability
Review Form 1040 crypto question Annually at filing Ensure accurate answer
Complete Schedule D and Form 8949 Annually at filing Report all disposals
Reconcile 1099s received Annually before filing Match IRS records
Consult tax professional Annually or for complex situations Professional review

 

Reconcile any 1099 forms received against your own records before filing. If an exchange sends a 1099-MISC or 1099-B, ensure the amounts match your calculations. If there are discrepancies, resolve them before filing by contacting the exchange for corrections or documenting why your figures differ. Unexplained discrepancies between 1099s and filed returns are primary CP2000 triggers.

 

Prepare for the new Form 1099-DA requirements. Starting with tax year 2025, you will receive detailed transaction reports from custodial exchanges. Ensure your own records are complete enough to verify and supplement this information. Starting in 2026, exchanges will report cost basis — make sure your records support the basis they report or be prepared to document differences.

 

Consider professional tax preparation for significant crypto activity. While DIY approaches work for simple situations, complex portfolios with DeFi activity, multiple exchanges, or substantial gains benefit from professional review. The cost of a CPA or tax attorney is minor compared to audit defense costs or penalties for incorrect filing.

 

Stay compliant with changing crypto tax rules
Access official IRS digital asset guidance

 

FAQ — 30 Essential Questions Answered

 

Q1. What is IRS Letter 6173?

 

A1. Letter 6173 is the most serious IRS crypto compliance notice. It indicates the IRS believes you have not reported significant cryptocurrency transactions and requires a response within 30 days. Failure to respond may trigger examination of your tax return.

 

Q2. What is the difference between Letter 6174 and 6174-A?

 

A2. Letter 6174 is a moderate warning that you may not have fully reported crypto activity. Letter 6174-A is the mildest version, primarily educational, reminding you of reporting obligations. Neither requires formal response, but both indicate IRS awareness of your crypto activity.

 

Q3. What is a CP2000 notice?

 

A3. CP2000 is an automated notice indicating the IRS found discrepancies between your filed return and information reported by third parties like exchanges. It proposes specific adjustments and calculates additional tax owed. You have 30 days to agree, disagree, or partially agree.

 

Q4. Is an IRS crypto letter a scam?

 

A4. Legitimate IRS letters arrive by mail (not email or text), include your taxpayer information, and reference specific tax years. Verify authenticity by calling the IRS at the number on IRS.gov (not numbers in the letter). If genuine, take it seriously.

 

Q5. How does the IRS know about my crypto?

 

A5. The IRS receives information from exchanges through 1099 forms, data sharing agreements, and John Doe summonses. They also use blockchain analysis tools to trace transactions. If you used a U.S. exchange, the IRS likely has data on your activity.

 

Q6. Do I have to respond to Letter 6174-A?

 

A6. Letter 6174-A does not require a formal response. It is primarily educational. However, you should review your tax filings for accuracy and consider filing amended returns if you discover unreported activity. Ignoring potential issues can lead to more serious letters later.

 

Q7. What happens if I ignore Letter 6173?

 

A7. Ignoring Letter 6173 significantly increases audit risk. The IRS may open a formal examination of your tax returns, assess taxes and penalties based on their information, and pursue collection actions. Always respond within the stated deadline.

 

Q8. What happens if I ignore a CP2000 notice?

 

A8. If you do not respond to CP2000 within the deadline, the IRS automatically assesses the proposed tax plus penalties and interest. They will issue a Statutory Notice of Deficiency, after which collection actions can begin. Your only recourse becomes Tax Court petition.

 

Q9. How long do I have to respond to IRS crypto letters?

 

A9. Letter 6173 and CP2000 typically provide 30 days to respond. The exact deadline is stated on the notice. Letters 6174 and 6174-A do not have formal deadlines but should prompt immediate review of your tax situation.

 

Q10. Can I get an extension to respond?

 

A10. Yes, you can request additional time by contacting the IRS before the deadline expires. Call the number on your notice or send a written request explaining why you need more time. Extensions are generally granted for reasonable requests.

 

Q11. What if the CP2000 amount is wrong?

 

A11. CP2000 calculations often assume zero cost basis, inflating the proposed tax. If you have cost basis documentation showing your actual purchase prices, submit it with a disagreement response. About one-third of CP2000 notices result in no additional tax after proper response.

 

Q12. Should I hire a tax professional?

 

A12. Professional help is recommended for complex situations involving significant amounts, multiple tax years, DeFi activity, or potential criminal exposure. For simple situations where you have good records and can document your position clearly, self-response is possible.

 

Q13. Can these letters lead to criminal charges?

 

A13. In most cases, no. These letters address civil tax compliance. Criminal prosecution requires willful evasion, typically involving large amounts and deliberate concealment. Honest mistakes and negligence are handled through civil penalties, not criminal charges.

 

Q14. What penalties can I face for unreported crypto?

 

A14. Accuracy-related penalties of 20% apply to underpayments from negligence or substantial understatement. Civil fraud penalties reach 75%. Failure to file penalties are 5% per month up to 25%. Interest accrues on all unpaid tax from the original due date.

 

Q15. Can I amend old tax returns to fix crypto reporting?

 

A15. Yes, using Form 1040-X. You have three years from the original filing deadline to amend. As of late 2025, 2021 returns can no longer be amended. Voluntary correction before IRS contact typically reduces penalties compared to corrections after audit begins.

 

Q16. What if I cannot find my old crypto records?

 

A16. Contact exchanges for historical transaction data. Use blockchain explorers to trace wallet activity. Check email for purchase confirmations. If records cannot be reconstructed, work with a tax professional to develop reasonable estimates using available information.

 

Q17. Does receiving a letter mean I will be audited?

 

A17. Not necessarily. Letters 6174 and 6174-A are primarily educational. Even Letter 6173 and CP2000 can often be resolved through proper response without escalating to full audit. Your response quality significantly affects whether further examination occurs.

 

Q18. What is the statute of limitations on crypto tax issues?

 

A18. Generally three years from filing or due date. For substantial understatement (over 25% of income), the period extends to six years. For fraud or failure to file, there is no limitation. The IRS can assess taxes indefinitely for unfiled returns.

 

Q19. How should I send my response?

 

A19. Send by certified mail with return receipt requested to prove timely delivery. Keep copies of everything. Some notices allow response via IRS Document Upload Tool or fax. Follow the specific instructions on your notice.

 

Q20. What documents should I include in my response?

 

A20. Include the response form from your notice, a clear explanation letter, exchange transaction histories, cost basis documentation, and any 1099 forms received. Organize documents clearly and reference them in your explanation.

 

Q21. What if I agree I owe tax but cannot pay?

 

A21. Contact the IRS to arrange a payment plan. Options include short-term extensions (up to 180 days), installment agreements (monthly payments), and in extreme cases, offers in compromise. Not paying is worse than establishing a payment arrangement.

 

Q22. Can the IRS seize my crypto?

 

A22. Yes. After assessment and proper notice, the IRS can levy assets including cryptocurrency held on exchanges. They have successfully seized crypto in enforcement actions. Resolving tax issues before levy stage is strongly advisable.

 

Q23. I reported everything correctly. Why did I get a letter?

 

A23. The IRS may have incomplete information or made matching errors. Respond by explaining that your filing is correct and provide documentation supporting your reported amounts. Letters are sometimes sent based on exchange account existence alone, not confirmed discrepancies.

 

Q24. What is the difference between CP2000 and an audit?

 

A24. CP2000 is an automated matching notice, not a formal audit. It proposes adjustments based on third-party information without examining your full return. Audits involve comprehensive review of selected items or your entire return by an IRS examiner.

 

Q25. Can I appeal an IRS decision on my crypto taxes?

 

A25. Yes. If you disagree with an IRS determination, you can request Appeals review before assessment becomes final. After assessment, you can petition the U.S. Tax Court within 90 days of receiving a Statutory Notice of Deficiency.

 

Q26. Does the IRS share crypto information with other countries?

 

A26. Yes. The Crypto-Asset Reporting Framework (CARF) enables international information exchange. The U.S. has tax treaties and information sharing agreements with many countries. Foreign exchange activity may be reported to the IRS through these channels.

 

Q27. What if I received crypto letters for multiple years?

 

A27. Address each year separately in your response. Gather records for all years mentioned. If the issues are related, explain the connection in your response. Consider professional help for multi-year situations as they are more complex.

 

Q28. How do I prevent future IRS letters?

 

A28. Report all crypto activity accurately on your tax returns. Answer the digital asset question truthfully. Reconcile 1099 forms received against your records. Use tax software for accurate calculations. Maintain comprehensive transaction records.

 

Q29. What if the exchange sent incorrect 1099 information?

 

A29. Contact the exchange to request a corrected 1099. If they refuse or cannot correct it, explain the discrepancy in your response to the IRS and provide documentation showing the correct amounts. Report what you believe is accurate on your return.

 

Q30. Where can I find official IRS guidance on crypto taxes?

 

A30. Primary sources include IRS.gov/filing/digital-assets, Notice 2014-21, Revenue Ruling 2019-24, and IRS FAQs on virtual currency. For understanding notices, visit IRS.gov/individuals/understanding-your-letter-or-notice.

 

 

Summary — Take Action Now, Not Later

 

Receiving an IRS letter about cryptocurrency is not the end of the world, but it demands immediate attention. The letter type determines urgency — Letter 6173 and CP2000 require response within 30 days, while Letters 6174 and 6174-A are prompts for voluntary review.

 

The key to successful resolution is organized, documented, honest response. Gather your crypto records, calculate accurate gains and losses, and address specifically what the IRS is asking. Avoid the critical mistakes of ignoring letters, providing incomplete documentation, or making false statements.

 

Remember that approximately one-third of CP2000 notices result in no additional tax after proper response. The IRS often has incomplete information, particularly regarding cost basis. Your documentation of actual purchase prices can dramatically reduce or eliminate proposed adjustments.

 

Prevention is always easier than response. Maintain comprehensive records, use tax software, report all activity accurately, and consider professional review for complex situations. These steps ensure you never receive an IRS crypto letter in the first place.

 

Disclaimer

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws vary by jurisdiction and individual circumstances. Consult a qualified tax professional, CPA, or tax attorney before making decisions based on this information. The author and publisher are not responsible for any actions taken based on this content. Information is current as of publication date and may change as regulations evolve.

Image Usage Notice

Some images in this article are stock photos or illustrations used for educational purposes. They may not represent actual IRS letters, forms, or specific products. For accurate information, please refer to official IRS publications and correspondence.

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