The IRS has significantly increased enforcement around crypto tax compliance in recent years. One of the key ways it does this is by issuing letters to taxpayers who may have engaged in cryptocurrency transactions. If you’ve received IRS Letter 6173, 6174, or 6174-A, it means the IRS has identified your crypto activity and wants to ensure proper tax reporting.
While not every letter implies wrongdoing, ignoring them can result in serious consequences, including audits and penalties. This guide outlines what each letter means and the steps you should take to remain compliant with federal tax regulations.
Why Did You Receive a Crypto Letter from the IRS?
The IRS receives user data from crypto exchanges through Know Your Customer (KYC) regulations, subpoenas, and third-party information sharing. Based on this information, it can identify taxpayers who hold or trade digital assets.
You may have received a letter even if you filed taxes in prior years. These notices serve as early warnings to encourage voluntary compliance. The IRS uses them to educate taxpayers or to initiate further review when crypto income has been unreported or underreported.
Whether your letter includes a deadline or not, it should not be ignored. Reviewing your tax returns and amending errors, if any, is the first step toward avoiding a formal audit. You can refer to our complete guide on Crypto Tax in the USA for a detailed explanation of tax treatment, reporting requirements, and compliance strategies.
Read More: Crypto Tax USA Guide
Understanding the Three IRS Letters: 6173, 6174, and 6174-A
The IRS has issued different letters depending on the nature of the concern. Each has a specific purpose and expected course of action.
IRS Letter 6173: Mandatory Response Required
IRS Letter 6173 is the most serious of the three. It is sent when the IRS believes you may have failed to report cryptocurrency income or did not file tax returns for one or more years, particularly between 2013 and 2017.
This letter requires a written response within 30 days. If you need more time, you may request an extension. The appropriate course of action depends on your tax history and reporting status.
- If you did not file tax returns for the years in question, submit them immediately.
- If you filed but omitted crypto income, file an amended return using Form 1040-X.
- If you believe your filings are accurate, send a statement of facts with supporting documentation to the IRS. This includes your contact details, the basis for your position, and a declaration that your submission is complete and accurate.
Failure to respond may lead to an IRS audit or further enforcement actions.
IRS Letter 6174: Informational Letter Only
IRS Letter 6174 is less serious and is sent as an informational notice. It typically indicates that the IRS is aware you hold cryptocurrency accounts and is reminding you to report digital asset transactions properly.
This letter does not require a response. However, it encourages you to review past returns and correct any reporting issues. If you identify missing crypto income or incorrect gain calculations, you may file an amended return.
Though it carries no immediate penalty, Letter 6174 serves as a reminder that the IRS is monitoring crypto activity and expects accurate reporting.
IRS Letter 6174-A: Warning of Possible Non-Compliance
Letter 6174-A is more specific than 6174. It is issued when the IRS believes you may have underreported crypto-related income but lacks enough evidence to escalate to a 6173.
While the letter does not include a mandatory deadline, it encourages prompt review and correction of any mistakes. The IRS may initiate additional enforcement if your records are not updated or if errors persist.
If your crypto transactions were reported inaccurately or not at all, use this opportunity to amend past returns. This proactive approach helps avoid penalties in the future.
What You Should Do After Receiving an IRS Crypto Letter?
Receiving any of these letters is a prompt to review your crypto tax filings. The first step is to gather your full crypto transaction history across all exchanges, wallets, and DeFi platforms.
Cross-reference your records with the information reported to the IRS, such as 1099-MISC forms issued by exchanges. If discrepancies exist, correct them by filing missing or amended returns. Be sure to use Form 1040-X for amendments and include Form 8949 and Schedule D to report capital gains.
If your records are complete and accurate, maintain your documentation in case of further communication from the IRS. When in doubt, consult with a qualified tax professional who understands digital asset reporting.
How KoinX Can Help You Stay Compliant?
Accurately reporting crypto taxes requires full visibility into every wallet and transaction. This can be difficult to manage manually, especially if you’ve used multiple platforms or traded frequently.
Crypto tax software like KoinX helps automate this process. Here’s how it can help:
Organise and Categorise Transactions Automatically
Once your data is imported, KoinX classifies transactions based on how they are treated under IRS guidelines. Whether it’s staking rewards, swaps, purchases, or sales, each transaction is tagged with its appropriate category to help you better understand your tax obligations.
Track Transactions Across Wallets and Exchanges
KoinX connects with over 300+ crypto platforms, including major exchanges and wallets. It allows you to import your entire transaction history in minutes, without having to enter each trade or movement manually. This ensures that no activity is missed when reviewing your tax position.
Monitor Capital Gains and Income in Real-Time
KoinX enables you to view your capital gains, losses, and crypto income on a central dashboard. You can track changes over time and understand your estimated tax exposure as your portfolio evolves. This visibility supports better planning ahead of the tax deadline.
Maintain an Audit-Ready Transaction History
With all your data consolidated in one place, KoinX helps you maintain a clear and verifiable transaction record. This is useful if the IRS requests additional details about your filings or if you need to verify past activity for amended returns.
Using KoinX does not replace professional tax advice, but it can significantly simplify your recordkeeping and review process. It’s a practical way to improve accuracy and stay prepared for any IRS reporting requirements.
Conclusion
IRS letters 6173, 6174, and 6174-A are part of the agency’s broader efforts to improve cryptocurrency tax compliance. Receiving one doesn’t automatically mean you’re in trouble, but it does mean you should take the situation seriously.
Review your previous returns, compare them with your crypto activity, and make corrections where needed. Whether you need to file, amend, or simply confirm that your records are accurate, acting early will help you stay compliant. Tools like KoinX can assist in maintaining accurate records and generating IRS-ready reports, making the process easier and more reliable. So join KoinX today, and make your crypto reporting easier than before.
Frequently Asked Questions
What Happens If I Ignore IRS Letter 6173?
If you ignore IRS Letter 6173, the agency may initiate an audit or enforcement action. The letter includes a 30-day deadline, and failure to respond may result in penalties, further investigation, or legal consequences. It’s important to either file the required returns or submit a detailed explanation with supporting documentation before the deadline.
Can I Respond To IRS Letters Without A Tax Professional?
Yes, you can respond on your own, but it’s recommended to consult a tax professional, especially one familiar with crypto taxation. They can help review your past filings, interpret the letter accurately, and prepare the appropriate response or amendments. This reduces the risk of errors and ensures that your response aligns with IRS expectations.
What If I Reported My Crypto Income But Didn’t Include Form 8949?
If you reported income but omitted Form 8949, the IRS may still issue a letter. Form 8949 is used to report capital gains or losses from crypto sales. In such cases, you may need to file an amended return using Form 1040-X and include the missing details to ensure full compliance with reporting requirements.
Do These Letters Apply To DeFi Or NFT Transactions?
Yes. The IRS expects all taxable crypto activity to be reported, including profits from DeFi platforms and NFT sales. If these were omitted from previous returns, they may trigger IRS attention. Letters 6173 or 6174-A could be issued if there’s suspicion of underreporting related to such digital asset transactions.
