Introduction
The IRS has increased its focus on cryptocurrency tax compliance, sending out thousands of notices to individuals suspected of improperly reporting their crypto transactions. Among these are IRS Letters 6174, 6174-A, and 6173, which serve as warnings to taxpayers who may have unreported digital asset transactions.
This article provides a detailed breakdown of each letter, explaining what they mean and how crypto investors should respond.
What Are IRS Letters 6174, 6174-A, and 6173?
The IRS has issued three different types of letters to cryptocurrency holders, each with varying levels of urgency:
1. IRS Letter 6174 – A Soft Notice
Letter 6174 is a soft notice, informing recipients that they may have unreported cryptocurrency transactions. However, the IRS does not require a response.
-
If you receive this letter and have correctly reported all crypto transactions, no action is needed.
-
If you have unreported or misreported transactions, this is an opportunity to amend your tax return before the IRS takes further action.
2. IRS Letter 6174-A – A Warning of Potential Enforcement
Letter 6174-A is similar to Letter 6174 but carries a stronger warning. While no response is required, the IRS indicates that it may take enforcement action in the future if unreported crypto activity is detected.
-
If you receive this letter, review your tax filings immediately to ensure all crypto transactions have been reported correctly.
-
Consider consulting a crypto tax professional to assess whether amendments are necessary.
3. IRS Letter 6173 – Immediate Action Required
Letter 6173 is the most serious of the three notices. It states that the IRS has evidence of unreported crypto transactions and requires a response by a specific deadline.
-
If you receive this letter, you must respond by the deadline or risk an IRS audit or investigation.
-
The IRS may request additional records to verify your crypto transactions.
-
Seeking professional tax assistance is highly recommended to ensure compliance and mitigate potential penalties.
Do I Need to Report Crypto Even If I Have a Loss?
Yes. The IRS requires all crypto transactions to be reported, including those with losses.
-
Losses can be beneficial for tax purposes, as they may offset capital gains.
-
Exchanges often report only sale amounts without the original cost basis, making it your responsibility to accurately calculate and report gains or losses.
What If I Reported My Crypto and Still Received a Letter?
Receiving a letter does not necessarily mean you filed incorrectly, but it does serve as an opportunity to double-check your tax return for accuracy.
-
Review your filings, especially regarding forks, airdrops, staking rewards, and like-kind exchanges.
-
If you’re unsure about your reporting, consider a professional review of your tax return to ensure compliance.
Conclusion
If you receive IRS Letter 6174, 6174-A, or 6173, it’s crucial to review your cryptocurrency tax filings immediately. Ensuring compliance now can help avoid audits, penalties, and legal issues in the future.
Block3 Finance provides expert guidance on cryptocurrency tax compliance, reporting, and IRS audit defense. Stay informed and take proactive steps to ensure your crypto taxes are in order.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.
You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.