If you’ve received Internal Revenue Service (IRS) Letter 6173 or 6174 about your crypto activity, don’t ignore it. With the IRS now receiving more digital asset transaction information through Form 1099-DA, crypto investors can expect greater scrutiny of reported transactions and potential mismatches between broker-reported data and their tax returns.
Both letters require different action. Letter 6174 is generally an informational notice that does not require a response, while Letter 6173 requires you to take action by the deadline stated in the letter. This guide explains what each letter means, why you may have received it, and exactly what crypto investors should do next to address the notice and stay compliant.
Overview:
- IRS letters flag unreported or mismatched crypto income across exchanges and forms.
- Notices 6173, 6174, 6174-A vary by severity and response urgency.
- Review filings, fix errors, and amend returns before IRS escalation.
- Complete records and accurate Form 8949 reporting reduce audit and penalty risk.
Why Did You Receive a Crypto Letter from the IRS?
The IRS can identify crypto activity through several channels, including exchange reporting, Know Your Customer (KYC) information, and John Doe summonses issued to cryptocurrency platforms. Now, the agency also receives Form 1099-DA information from brokers for certain digital asset sales made from 2025 onward. Brokers began reporting gross proceeds for 2025 transactions, while reporting of basis for certain covered digital assets applies to transactions from 2026 onward.
This broader information trail can make discrepancies easier for the IRS to identify. You may receive a crypto letter even if you have filed your returns in previous years, particularly if the information available to the IRS does not align with what you reported.
Common Triggers for IRS Crypto Letters
- Unreported or underreported crypto income or gains
- Mismatches between your tax return and Form 1099-series information, including Form 1099-DA
- Missing or incomplete Form 8949 reporting
- Failure to report taxable digital asset transactions or income
- Differences between information reported by a broker or exchange and the activity reported on your tax return
Whether or not your letter includes a deadline, ignoring it can increase the risk of an audit. Start by reviewing past returns and correcting any errors. You can also refer to our dedicated IRS Crypto Audits guide for a deeper look at how the IRS evaluates digital asset activity.
Understanding the Three IRS Letters: 6173, 6174, and 6174-A
Each of these letters represents a different level of concern from the IRS, ranging from simple education to potential non-compliance.
Letter | Urgency | Mandatory Response | Why You Received It | What to Do |
6173 | High | Yes — by stated deadline (usually within 30 days) | Possible unreported crypto income or missing returns | Correct filings and respond |
6174 | Low | No | Reminder to report crypto correctly | Review filings; correct errors |
6174-A | Medium | No | Possible crypto underreporting | Review records; amend if needed |
IRS Letter 6173: Mandatory Response Required
Letter 6173 signals the highest level of concern and demands a written response. The IRS sends it when it believes you failed to report crypto income or did not file tax returns for specific years.
What Should You Do?
- Submit missing tax returns immediately if you did not file earlier years
- File an amended return using Form 1040-X if crypto income was omitted
- If you believe your filings are correct, send a statement of facts with documentation, explanation, and your contact details
- Failure to respond within 30 days or the deadline given to you, may result in an audit or additional enforcement actions.
IRS Letter 6174: Informational Letter Only
Letter 6174 is an educational notice that does not require a reply. It simply indicates that the IRS knows you hold or trade crypto and wants you to report transactions accurately.
What Should You Do?
- Review your previous tax returns
- Correct any mistakes by filing an amended return
- Ensure gains, losses, and income are properly documented going forward
- This letter carries no immediate penalty but signals increased oversight.
IRS Letter 6174-A: Warning of Possible Non-Compliance
Letter 6174-A suggests the IRS believes you may have underreported income but does not yet have enough evidence to escalate. There is no required deadline, but prompt action helps prevent future issues.
What Should You Do?
- Re-check your crypto activity for missing income or incorrect gains
- File amended returns if you spot errors
- Keep supporting documents ready in case the IRS follows up
- Addressing discrepancies early reduces the chance of penalties or formal audits.
Note: Before responding to any IRS letter, make sure your crypto tax reports are accurate. KoinX automatically imports transactions from 800+ platforms, calculates gains, and generates audit-ready tax reports, helping you fix errors quickly and confidently.
What Should You Do After Receiving an IRS Crypto Letter?
Receiving an IRS crypto letter is your prompt to review your digital asset tax filings and ensure everything matches what the IRS has on record.
Follow These Steps: Your 5-Step Action Checklist
- Collect Your Complete Transaction History: Gather data from all exchanges, wallets, and DeFi platforms, including trades, transfers, income, and staking rewards.
- Match Your Records With IRS-Reported Data: Compare your logs with Forms 1099 (including 1099-MISC or 1099-DA). Any mismatch must be resolved before you respond.
- Correct Errors By Filing Amendments: Use Form 1040-X for amendments and attach Form 8949 plus Schedule D to report gains and losses accurately.
- Document Everything Thoroughly: If your filings are already accurate, keep records organised in case the IRS requests supporting documentation later.
- Seek Expert Guidance When Needed: For complex cases, especially involving DeFi, NFTs, or multiple platforms, consult a crypto-specialised tax professional.
For a detailed breakdown of capital gains and income reporting, refer to our internal guide: How To Report Crypto In Taxes?
Note: Do not ignore the letter even if it does not require a response; do not guess numbers or estimate gains because incorrect filings can lead to penalties, and do not file anything without verifying your complete transaction history.
How KoinX Can Help You Stay Compliant?
Receiving an IRS crypto letter might require you to review your crypto tax data. Keeping it all in one place and organised makes the process very smooth and easy for you to identify potential reporting gaps before responding to the IRS.
- Import transactions: Bring data from multiple exchanges and wallets into one place for a consolidated view of your activity.
- Identify missing transactions: Review your transaction history to spot gaps that could affect your reported gains, losses, or income.
- Calculate crypto taxes: Generate tax calculations based on your transaction history and applicable tax rules.
- Generate tax reports: Prepare detailed reports that can help you review or support your tax filings, including transaction-level records.
- Keep records organized: Maintain your crypto transaction data and tax reports in one place, making it easier to review past filings or work with a tax professional when responding to an IRS notice.
KoinX helps simplify the data and reconciliation side of crypto tax compliance, but it does not determine how you should respond to an IRS letter. For Letter 6173 or any notice involving potential underreporting, consider consulting a qualified tax professional.
What If You Already Filed Your Crypto Taxes but Received IRS Letter 6173, 6174, or 6174-A?
Receiving an IRS crypto letter does not necessarily mean you failed to file your taxes. The IRS may have received different or additional information from an exchange, broker, or another third party that does not match your return.
Start by comparing the information mentioned in the letter with your tax return, Form 8949, transaction history, and exchange or wallet records. Check whether you reported all taxable transactions, used the correct cost basis, and included crypto income such as staking or mining rewards.
If you find an error, you may need to file an amended return or take another corrective action. If your original return is accurate, keep the supporting records and follow the instructions in your notice.
What If the IRS Information in Letter Is Wrong?
IRS records are not always complete or accurate. A transaction may be attributed to you incorrectly, a transfer between your own wallets may be mistaken for a taxable transaction, or information reported by an exchange may not reflect the full context of a transaction.
If you believe the information in your letter is incorrect, do not amend your return solely because you received the notice. Try this:
- First, reconcile the IRS information with your own records.
- Gather exchange statements, wallet transaction histories, Forms 1099, cost-basis records, and other documentation that supports your position.
- For a Letter 6173, follow the response instructions and deadline in the notice and provide the required explanation or documentation.
What Happens If You Ignore IRS Letters 6173, 6174, or 6174-A?
Ignoring an IRS crypto letter does not automatically create a penalty. The consequences generally arise when the underlying issue is unpaid or underreported tax, or when you fail to comply with a required IRS response. These consequences could be one or more of the following:
- Additional tax
- Failure-to-file penalty: Generally 5% of unpaid tax for each month or part of a month, up to 25%.
- Failure-to-pay penalty: Generally incurs 0.5% per month, up to 25%. The rate can increase to 1% after certain IRS collection notices.
- Accuracy-related penalty: Can result in a 20% penalty on the relevant underpayment.
- Interest: The IRS generally charges interest on unpaid tax from the original due date until payment. Interest compounds daily, with the rate changing quarterly. For individuals, the rate is currently 7% for Q4 2026.
- Audit or examination: With Letter 6173, failing to respond as instructed can result in the IRS considering the account for examination.
- Further enforcement: In serious cases involving willful noncompliance, the IRS can pursue stronger civil or criminal enforcement. The IRS has specifically warned that failure to properly report virtual currency can, where appropriate, lead to criminal prosecution.
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. DeFi and NFT transactions can still be subject to crypto tax rules, even after the repeal of the DeFi broker reporting rule. The repeal removed the reporting requirement for certain DeFi participants; it did not remove taxpayers’ obligation to report taxable transactions. NFT sales may also be subject to Form 1099-DA reporting under applicable rules. If taxable DeFi or NFT activity was omitted from your return, it could contribute to IRS scrutiny.
Can I Receive Multiple IRS Crypto Letters in Different Years?
Yes, the IRS can issue crypto-related letters across different years if new information becomes available or if your activity changes over time. Each notice reflects the data the agency has for that specific year, so receiving multiple letters does not automatically mean past issues remain unresolved. It simply signals continued monitoring of digital asset activity.
