An unfavorable crypto audit can lead to a substantial tax bill. In fact, crypto audits by the Internal Revenue Service (IRS) resulted in an average additional tax assessment of nearly $55,000, according to a July 2024 report by the Treasury Inspector General for Tax Administration.
However, if missing records or new evidence affected your assessment, you may be able to challenge the bill. When the tax remains unpaid, you can ask the IRS to review its decision through a process called audit reconsideration, without going to court or filing a formal appeal.
This guide explains when you qualify for audit reconsideration, how to request it for a crypto tax assessment, and what happens after you submit your request. It also covers the separate process for challenging crypto tax bills that originated with a CP2000 notice.
Key Takeaways
- Audit reconsideration reopens an IRS audit when the tax is unpaid and you have new information.
- Crypto bills from a CP2000 follow a separate route called AUR reconsideration.
- Form 12661 lets you list each disputed issue with matching evidence.
- A denied request still leaves you an Appeals conference or a refund claim.
- Audit reconsideration lets you ask the IRS to review an unpaid audit assessment you dispute.
What Is IRS Audit Reconsideration?
Audit reconsideration is how the IRS reevaluates a prior audit’s results. Under Internal Revenue Manual (IRM) 4.13.1, the assessed tax must remain unpaid. A disputed tax credit reversal also qualifies. You must have filed a return and identify the adjustments you dispute. You need new information or proof of an IRS computational or processing error.
Who Can Request Audit Reconsideration?
The IRS audit reconsideration page lists four situations that qualify. Each one reflects a common crypto audit story, as outlined below.
- Missed Audit: You did not appear for the audit or provide the requested information.
- Missed Correspondence: You moved and never received the IRS letters.
- New Information: You now have records that were not available during the audit.
- Disagreement: You disagree with the audit findings.
How Audit Reconsideration Differs From An Appeal?
Reconsideration reopens your existing audit within the same examination function. You simply add evidence the examiner did not consider. An appeal, by contrast, sends a dispute to the IRS Independent Office of Appeals. Appeals becomes an option later, if the IRS denies your reconsideration request.
What Is AUR Reconsideration For Crypto Tax Assessments?
AUR reconsideration is a request to reevaluate a prior Automated Underreporter (AUR) assessment. The IRM 5.1.15 describes it for taxpayers who disagree with the original determination. Many crypto bills start here rather than in an audit. Audit reconsideration rules exclude these assessments, so they follow their own path.
What The Automated Underreporter Program Does
The AUR program matches your return against information returns from third parties, including crypto exchanges. A mismatch produces a CP2000, which proposes extra tax. If the dispute stays unresolved, a CP3219A Notice of Deficiency follows. Our guide to IRS crypto notices explains those early letters.
How To Request AUR Reconsideration?
The IRM states you must submit a written request for reconsideration, file an amended return, or both. Either way, identify the specific income or deduction items you dispute. For crypto, that usually means sales reported without basis. The IRS campus running the AUR program that made the assessment handles the request.
Why Does The Request Not Pause The Tax Court Deadline?
A CP3219A gives you 90 days to petition the US Tax Court. An IRS presentation on reconsideration states that a reconsideration request does not toll that period. If you still hold an open CP3219A, protect the court deadline first. Reconsideration remains available after assessment.
How To Tell Which Reconsideration Route Applies To You?
Your paperwork shows the route. An audit ends with Form 4549, the examination report, which leads to audit reconsideration. A CP2000 and CP3219A history points to AUR reconsideration instead. Our guide to the IRS collection ladder maps how those notices lead to a bill.
You can request audit reconsideration anytime after an examination assessment, provided the tax remains unpaid. You also need new information or proof of an IRS error. Some outcomes, such as signed agreements or court decisions, close the door entirely. Checking these limits first saves time on a request the IRS cannot accept.
The Unpaid Tax Requirement
The IRS reconsiders only assessments that remain unpaid. If you already paid the bill, reconsideration is no longer the right tool. The audit reconsideration page directs you to file Form 1040-X to claim a refund instead. A fully paid audit becomes a refund claim, handled under different procedures.
Crypto Evidence That Counts As New Information
New information means records the examiner did not consider. For crypto, it often fills gaps the audit exposed. Missing basis, exchange statements, and wallet histories all qualify. Proof that a flagged sale was a transfer between your own wallets also counts. Our guide on crypto cost basis explains how to rebuild the key figure.
When The IRS Will Not Reconsider An Audit?
Some cases cannot be reopened through this process. IRM 4.13.1 and Publication 3598 list the main exclusions below.
- Signed Agreements: Closing agreements on Forms 906 or 866, or a Form 870-AD agreement.
- Compromises: Liabilities settled through an accepted offer in compromise.
- Court Decisions: A final determination from the US Tax Court or another court.
- Paid Balances: Audits where the tax has already been paid in full.
How Do You File An Audit Reconsideration Request With The IRS?
You file by explaining each disputed adjustment and attaching evidence for it. Form 12661 is the recommended format, though a letter also works. Include a copy of your examination report if you have one. Then send the package online or by mail to the office that handled your audit.
Completing Form 12661
Form 12661, titled Disputed Issue Verification, uses one block per disputed issue. Each block asks for the issue, your reason for disagreeing, and the amount claimed on your return. It also asks for the amount the audit allowed. For a crypto case, each disputed sale or income item can take its own block.
Work through the preparation in order. Each step builds on the one before it.
Step 1: Review Your Form 4549
Read the examination report and list every adjustment you dispute. Note the amounts the examiner allowed for each crypto item.
Step 2: Gather Photocopies Of Your Crypto Records
Collect exchange statements, transaction histories, and basis calculations. Send photocopies only, because the IRS does not return originals.
Step 3: Complete Form 12661 Or Write A Letter
Fill one block for each disputed issue. A clear letter covering the same details also works.
Step 4: Number Each Document To Match Its Issue
The form asks you to number supporting documents with the same number as their issue. This keeps the review fast and clear.
Step 5: Add Your Contact Details
Publication 3598 asks for daytime and evening phone numbers. Include the best time for the IRS to call.
The IRS recommends the Document Upload Tool when your audit letter offers it. Otherwise, mail the package to the IRS office shown on your audit letter. To confirm that address, call 866-897-0161 or 866-897-0177. Keep copies of everything, and consider certified mail for proof of delivery.
What Happens After You Submit An Audit Reconsideration Request?
After you submit, the IRS reviews your evidence against the original adjustments. It may pause collection while that review runs. The result can remove the tax, reduce it, or leave it unchanged. If the IRS denies your request, you still have further options to pursue.
Processing Time And Collection Activity
The IRS estimates about 30 days for a response, though some requests take several months. Publication 3598 states the IRS “may delay our collection activity” once it receives your documents. It may also resume collection if the evidence falls short. Interest continues to build on any unpaid balance during the review.
Possible Outcomes Of Your Request
The IRS can accept your information and abate the tax entirely. It can accept part of your evidence and reduce the bill. It can also find the evidence insufficient and leave the assessment in place. Strong, well-organized crypto records make the first two outcomes far more likely.
Your Options If The IRS Denies The Request
Publication 3598 lists three paths after a denial. You can request an Appeals conference. You can pay the full amount and file a formal claim for a refund. Or you can do nothing, and the IRS will send a bill. Our guide on IRS crypto audits explains how to prepare for the next stage.
How KoinX Helps You Build A Reconsideration Case?
A reconsideration request succeeds or fails on evidence. For crypto, that evidence lives across exchanges, wallets, and years of trades. The examiner needs clear, numbered records that answer each disputed adjustment. KoinX pulls data from 800+ integrations so you can build that file before you send it.
Complete Tax Report For Rebuilt Gains
The Complete Tax Report recalculates your gains, losses, and income for the audited year. It shows your own figures beside each adjustment you dispute. That comparison becomes the core reason you give in each Form 12661 block.
Transaction History For Disputed Trades
The Transaction History report lists every trade, deposit, and withdrawal across your accounts. When the examiner treated a transfer as a sale, this record shows the full trail. Each entry can become a numbered exhibit supporting a disputed issue on your form.
Form 8949 Report For Corrected Figures
The Form 8949 Report lists each crypto sale with dates, proceeds, and cost basis. It supports the corrected amounts you claim in your request. If you need an amended return for AUR reconsideration, it also prepares those sales.
A crypto audit bill is not always the final word. Sign up on KoinX to rebuild your records and give the IRS the evidence it never saw.
Conclusion
Reconsideration rewards preparation more than persuasion. The reviewer has only your paperwork to go on. Number every document to match its Form 12661 block before you send anything. A reviewer who can follow your case quickly is far more likely to adjust the bill.
Start before collection pressure builds, while the tax remains unpaid and your options stay open. Rebuild your crypto records on KoinX and turn the gaps in your audit into documented answers.
Frequently Asked Questions
Is There A Deadline To Request Audit Reconsideration?
Publication 3598 allows a request anytime after an examination assessment, provided the tax remains unpaid. No fixed filing window applies, unlike the 90-day Tax Court deadline. Waiting carries risk, however. Collection can continue in the meantime. Paying the bill also moves you into the refund claim process instead.
Do You Need To Send Original Documents?
No. Send photocopies only. Form 12661 states this directly, and the IRS does not return originals. Keep your original exchange statements, wallet records, and basis calculations safe. You may need them again if the case moves to Appeals or a refund claim.
Does Audit Reconsideration Stop Interest From Growing?
No. A reconsideration request can delay collection, but interest keeps building on any unpaid balance. Interest and applicable penalties stop only once the balance is paid in full. Paying what you can now limits that growth while the review continues.
Can The Taxpayer Advocate Service Help With A Delayed Request?
Yes. The IRS audit reconsideration page suggests contacting the Taxpayer Advocate Service if your request faces significant delays. The service operates independently within the IRS and helps when normal channels stall. You can reach it at 877-777-4778 or request help using Form 911.
