Getting a Letter 6173, 6174, or CP2000 from the IRS can feel stressful, especially when crypto is involved. It’s natural to worry about what the notice means and whether you might have missed something in your return. These letters often raise questions, but they don’t automatically imply wrongdoing.
What they do signal is the need to respond carefully. The IRS is reviewing crypto activity more closely, and each notice points to a different type of follow-up. This guide explains what these letters mean and how to address them with confidence.
Overview
- IRS audits crypto due to underreporting, data sharing, and increased enforcement resources.
- Letters 6173, 6174, and CP2000 differ in urgency and required responses.
- Missing or mismatched crypto reporting can trigger notices, penalties, and full audits.
- Fix issues early by reviewing records, amending returns, and preparing documentation.
6173 vs 6174 vs CP2000: Key Differences
Understanding the differences between IRS Letters 6173, 6174/6174-A, and CP2000 is essential for responding correctly. Here is a quick comparison of how these notices differ in purpose, urgency, and required actions:
Feature | IRS 6173 | IRS 6174 / 6174-A | CP2000 Notice |
Type | Compliance letter | Informational letter | Proposed tax adjustment notice |
Response Required? | Yes, mandatory | No, but recommended | Yes, to confirm or dispute |
Reason Issued | Suspected crypto non-compliance | Possible unreported crypto income | Discrepancies in tax return |
Next Steps | File/amend return, provide proof | Review/amend return if needed | Accept or dispute adjustments |
Risk Level | High | Moderate | Moderate to High |
Possible Penalties | Severe, if ignored | None initially | Possible additional tax and interest |
Read More: Crypto Tax USA Guide
Understanding IRS Notice 6173
As crypto adoption grows, the IRS is closely monitoring taxpayers who may have left crypto trades out of their tax filings. IRS Letter 6173 is the most serious crypto-related notice you can receive. It signals that the IRS has enough data to question your tax reporting and expects a clear response.
What Is IRS Letter 6173?
IRS Letter 6173 is a compliance notice sent to taxpayers suspected of failing to report crypto transactions. Unlike other IRS crypto letters, this one requires action. If you ignore it, the IRS may escalate the matter through audits, penalties, or further enforcement.
Why Did You Receive a 6173 Notice?
The IRS may send this notice for reasons such as:
- You failed to report crypto transactions on your tax return.
- There are differences between your filings and data reported by exchanges.
- Your trading activity raised compliance red flags.
Exchanges and platforms are now required to share crypto transaction data with the IRS, making it easier for them to identify discrepancies.
Consequences of Ignoring IRS Letter 6173
Ignoring Letter 6173 has serious consequences. The IRS treats non-response as noncompliance, which could lead to:
- Full audits of your tax returns.
- Substantial penalties for underreporting income.
- Possible legal action if fraud is suspected.
The best way to protect yourself is by taking action within the timeframe mentioned in the notice.
How to Respond to IRS Letter 6173?
If you receive a 6173 notice, follow these steps:
- Review your tax return and crypto transactions.
- File an amended tax return using Form 1040-X if you missed reporting any income.
- Prepare supporting documents like exchange statements, wallet records, and profit/loss calculations.
- If your filings were correct, provide documentation to explain your reported income.
Consulting a tax professional or using a crypto tax software platform like KoinX can help you gather the right documents and respond accurately.
Understanding IRS Notice 6174 and 6174-A
Not every IRS notice is an immediate threat, but none should be ignored. IRS Letters 6174 and 6174-A are designed to encourage voluntary compliance. While these notices do not demand a response, they serve as important reminders to review your tax filings and correct any mistakes related to crypto income.
What Are IRS Letters 6174 and 6174-A?
Letters 6174 and 6174-A are informational notices. They inform taxpayers that the IRS is aware of their crypto transactions and suggest reviewing prior returns. These letters are sent when the IRS believes there may be missing income but doesn’t yet have enough evidence to require immediate enforcement.
Key facts about these notices:
- They do not require a mandatory response.
- The language advises you to voluntarily correct your tax return if you missed reporting crypto income.
- Ignoring them may lead to future audits if the discrepancies remain unaddressed.
Key Differences Between 6174 and 6174-A
Although both notices serve the same purpose, there are small differences in tone and wording:
Letter Type | Purpose | Language Style |
6174 | General reminder to check your crypto reporting | Informative and neutral |
6174-A | Stronger reminder suggesting possible errors | Slightly more urgent and advisory in tone |
In short, 6174-A carries a slightly stronger warning about potential underreporting when compared to 6174.
What To Do After Receiving 6174 or 6174-A?
Even though these letters do not demand a reply, taking the right steps helps you avoid future problems:
- Review your prior tax returns for missed crypto transactions.
- Use crypto tax software like KoinX to reconcile your trade history with your filings.
- File an amended return (Form 1040-X) if you find income that was not previously reported.
- Maintain supporting documents to prove your crypto activity is accurately reported.
Acting on these notices proactively can help you stay compliant and avoid the risk of receiving a more serious notice like 6173 later on.
Understanding IRS CP2000 Notice
The CP2000 notice is different from the crypto-specific 6173 and 6174 letters. It applies to any discrepancies the IRS identifies between your tax return and the information it has from third-party sources, such as exchanges, employers, or banks. If your reported crypto income doesn’t match the IRS data, you may receive this notice.
What Is a CP2000 Notice?
The CP2000 is a proposed adjustment notice, not a penalty letter. It informs you that the IRS found differences between what you reported and what others reported about your income. You are required to review the proposed changes and either agree or dispute them.
Key points to know:
- It’s not a final bill, but a proposal for tax adjustments.
- You must respond by the deadline stated in the notice.
- The IRS applies CP2000 to various income sources, including crypto.
Why Did You Receive a CP2000?
A CP2000 notice may be triggered by:
- A mismatch between your crypto income and what exchanges reported on forms like 1099.
- Failure to report certain crypto transactions in your tax return.
- The IRS received data from multiple exchanges that you did not consolidate correctly.
Sometimes the IRS data may be incomplete or incorrect, which is why reviewing your own records is essential.
How to Respond to CP2000?
When you receive a CP2000, take these steps:
- Review the proposed changes in detail.
- If correct, accept the adjustments and pay the amount owed.
- If incorrect, dispute the changes by providing supporting documentation such as:
- Crypto exchange statements.
- Wallet transaction histories.
- Tax reports from crypto tax software like KoinX.
Responding promptly allows you to resolve the issue before it escalates into further penalties or enforcement.
IRS Crypto Tax Letter Response Timeline
The official IRS guidance focuses more on your required response time for these letters, rather than how quickly the IRS will process your reply.
|
Notice/Letter |
Your Required Response Time |
Estimated IRS Follow-up Time |
|
Letter 6173 |
30 days (Mandatory response) |
1 to 6+ months |
|
Letter 6174/6174-A |
No response required (Review encouraged) |
N/A (unless you file an amended return) |
|
CP2000 |
30 days (Mandatory response) |
1 to 6+ months |
What Should Crypto Investors Do After Receiving An IRS Notice?
Before reacting to an IRS crypto notice, take a structured approach so you respond correctly and avoid unnecessary penalties.
1) Read the Notice and Check the Deadline
Go through the letter line by line and note the exact response date. Ignoring the notice can lead to additional assessments, so keep the timeline in focus.
2) Compare Your Return With IRS Records
Review your tax return alongside exchange statements, Form 1099s, and your crypto tax report. Make sure every trade, sale, and income event matches what the IRS may have received.
3) Amend or Confirm Your Filing
If you spot errors or missing activity, file an updated return using Form 1040-X. If everything is accurate, reply to the IRS with the documents that support your reported numbers.
What Penalties Can You Face If You Ignore These IRS Notices?
If the IRS sends you a letter, open it and answer right away! Ignoring such letters will lead to penalties, and you will end up owing more money.
|
Notice/Letter |
Severity |
Action if Ignored |
|
6173 |
Most Serious (Mandatory Response) |
Direct Referral for Audit/Examination (high risk) |
|
6174/6174-A |
Informational (No immediate response required) |
Increased risk of future escalated notices (like 6173 or CP2000) and penalties. |
|
CP2000 |
Serious (Mandatory Response) |
IRS Assesses Proposed Tax/Penalties and begins collection actions. |
How KoinX Helps Simplify Crypto Tax Compliances In The USA?
If keeping track of all your crypto trades and wallets feels like a full-time job, you’re not alone. Many investors find it difficult to manage transactions across multiple platforms, especially when it comes to calculating taxes.
That’s where KoinX steps in. It helps you automate the entire process, making it easier to stay compliant with the IRS and avoid costly mistakes.
Automatically Import Your Transactions
With support for 800+ platforms, KoinX makes it easy to import your crypto transactions from exchanges, wallets, and DeFi protocols.
You don’t have to manually enter data from each trade. Instead, you simply sync your accounts, and KoinX collects your trade history, transfers, and staking rewards in one place.
This eliminates the risk of missing critical transactions and helps you maintain a complete record that matches what exchanges and third-party services report to the IRS.
Identify Missing or Incorrect Data
Even with careful tracking, it is easy to miss certain trades or transfers when reporting crypto taxes. KoinX automatically flags missing data, duplicate entries, and unmatched transactions. It gives you clear prompts to correct these gaps before filing your tax return.
This ensures your tax report is both accurate and audit-ready. When dealing with IRS notices like 6173 or CP2000, having a clean, reconciled dataset makes it easier to respond confidently with supporting evidence.
Generate Audit-Ready Reports
When tax season arrives or if you receive a notice from the IRS, the last thing you want is to scramble for your crypto transaction records. KoinX generates clear, audit-ready reports that summarise your gains, losses, and taxable income.
These reports are formatted to align with IRS filing requirements, making it easy to file your taxes correctly. If discrepancies arise later, you already have detailed documentation to support your case, reducing the chances of further scrutiny.
Managing crypto taxes doesn’t have to be complicated. KoinX helps you streamline the entire process, from importing your trades to generating audit-proof tax reports. Start using KoinX today to stay compliant with IRS requirements and avoid unexpected tax notices.
Conclusion
The IRS is no longer overlooking crypto trades, and these notices are proof that tax compliance in digital assets is now a priority. Whether you received a 6173, 6174, or CP2000 notice, your next steps matter. Ignoring these letters can lead to penalties, audits, and unnecessary stress. Taking the time to review your filings and correct mistakes can help you resolve these issues before they escalate further.
Receiving an IRS crypto letter doesn’t always mean you’re in trouble. With accurate records and tools like KoinX, you can quickly resolve issues and prove compliance. Act early, stay transparent, and you’ll be fine. So why the delay? Get started with KoinX today and resolve your crypto tax notices with ease.
Frequently Asked Questions
Can I Ignore A CP2000 Notice From The IRS?
No, you should never ignore a CP2000 notice. It requires a response, either agreeing with the proposed tax adjustment or disputing it with supporting documents. Ignoring this notice can lead to automatic tax adjustments, additional penalties, and interest charges on the unpaid amount. Prompt action helps resolve discrepancies efficiently.
What Happens If I Already Reported My Crypto And Still Got A Notice?
If your crypto income was already reported, the IRS notice may result from incomplete exchange data or reporting mismatches. Review your transaction records and tax return to confirm accuracy. Respond to the notice with supporting documents to clarify your position. If needed, consult a crypto tax professional.
Does The IRS Track Crypto Trades From Foreign Exchanges?
Yes, the IRS receives data from both domestic and some foreign exchanges, especially those required to comply with US tax laws. Platforms like Binance have begun reporting user activity. Even trades from foreign exchanges are subject to US tax reporting, and failing to disclose them may trigger IRS scrutiny.
How Do I File An Amended Tax Return For Crypto Income?
You can file an amended return using IRS Form 1040-X. This form allows you to correct your original return by adding your unreported crypto income. Attach the necessary supporting documents, including profit and loss calculations. Filing an amended return quickly helps reduce penalties and interest on unpaid taxes.
