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
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.
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.
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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.
