These days, the Inner Income Service has ramped up the frequency of warning letters despatched to cryptocurrency buyers. Experiences point out that almost all recipients obtain one in every of three letter sorts: 6173, 6174, or CP2000. However what do these letters imply, and do they sign a broader crackdown on crypto?
Regulation of cryptocurrency taxes continues to be one thing many individuals don’t take note of; nevertheless, ignoring this a part of monetary life could also be harmful. Probably the most vivid instance is the usage of alleged tax evasion for the prosecution of Roger Ver, one of many first notable Bitcoin popularizers.
The surge in IRS letter frequency could also be defined by the 1099-DA laws scheduled to be adopted this 12 months. It’s the first cryptocurrency-specific tax type by the IRS.
Some buyers discover the warning letters method dismaying and really feel it’s harassment, as in these letters, the IRS informs receivers that the service is conscious they carried out cryptocurrency transactions, and these transactions should be reported to the IRS correctly.
What makes a few of these letters look creepy is that the IRS is throwing information like “we know you owned crypto between 2018 and 2020” on the receiver and alleging that the letter receiver might not have reported crypto-related earnings correctly. Let’s test what these letters imply virtually.
Kinds of the letters
Primarily, crypto buyers obtain three kinds of letters from the IRS: 6173, 6174, and CP2000. Kind 6174 is considered the least disturbing, because it has solely an informational goal and doesn’t require motion. It’s a “soft notice” letter and, mainly, it may be ignored.
Nonetheless, it alerts that the IRS is conscious of your involvement in crypto funding. If the IRS believes the taxpayer has completed one thing improper, it might ship extra pressing letters later. Letter 6174 could also be seen as a superb purpose to test if earlier studies had been made accurately.
6174 doesn’t point out that the IRS is conscious of any wrongdoing. Taxpayers might obtain this letter in the event that they had been utilizing U.S.-based exchanges, reminiscent of Kraken, Coinbase, Binance US, and others. One other doable purpose is that their crypto transactions had been reported by somebody utilizing Kind 1099-MISC or 1099-B. Lastly, the receiver’s account might have been flagged by the IRS due to a third-party knowledge match.
The 6173 and CP2000 letters are extra pressing and require motion. Letter 6173 is the letter that wasn’t frequent till now. It states:
“We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”
This letter can’t be ignored because it unambiguously informs a taxpayer that they’ve allegedly underreported their crypto earnings, and the IRS can do an audit. The data in regards to the taxpayers’ crypto transactions could also be obtained by the IRS from the exchanges they use.
Discrepancies between reported crypto transactions and change knowledge might result in a 6173 letter. On high of a whole lack of studies on crypto, the rationale could also be errors in reporting—reminiscent of not reporting staking or mining rewards, not making use of capital positive aspects tax on crypto conversions, and extra. A tax legal professional can assist repair the issues earlier than the deadline indicated within the letter.
The CP2000 discover consists of the precise quantity that wanted to be reported. The supply of this letter is the Automated Underreporter Unit of the IRS, which generates due notices utilizing computer systems. On condition that these notices are generated robotically, there’s an opportunity they’re incorrect.
In some circumstances, CP2000 claims the taxpayer owes extra in taxes than they really do. Some varieties might inform the taxpayer of a refund. If the quantity is right, the taxpayer might fill within the type and pay. If not, it’s higher to dispute it. Calling a tax legal professional could also be an choice.
Given how a lot data the IRS might collect, a proactive place of crypto buyers and merchants is a should. It’s higher to work on tax studies diligently and be prepared to reply to IRS letters in time. Often, this implies inside a 30-day interval.
The IRS vs. Trump Administration 2.0
The IRS can have extra details about cryptocurrency transactions than earlier than. That can occur this 12 months as quickly as Kind 1099-DA is adopted. The strain is rising, even because the crypto-friendly Trump Administration 2.0 is planning the abolition of the IRS itself and changing it with tariffs. In January 2025, Congressman Earl Carter proposed a invoice changing the IRS with a consumption tax—that means that costs would rise considerably.
Commerce Secretary Howard Lutnick defined that the plans to abolish the IRS are consistent with the protectionist insurance policies of Donald Trump. The alternative of the IRS with tariffs is summed up with the credo: “make the outsiders pay.”
It’s unclear whether or not Trump will really abolish the IRS anytime quickly, however the elevated scrutiny of crypto transactions might solely gasoline supporters’ want to close the service down.