🚨I continue to be dismayed and outraged by the IRS’s use of Letters 6173 and 6174 against crypto holders who owned digital assets in prior years.
These letters feel like a harassment tactic, and here’s why.
Earlier this week, I warned that we were seeing an unusual spike in these letters.
Since then, the picture has become even more concerning.
In a very short period of time, we’ve had:
• 5 people come to us with Letter 6174 notices.
• 3 additional people come to us with CP2000 or CP2501 notices.
These are different IRS notices, but taken together, the sudden volume has my attention.
What are Letters 6173 and 6174?
These are IRS voluntary compliance letters. Essentially, the IRS is saying:
• We have information suggesting you had cryptocurrency activity.
• We believe you may not have fully met your tax reporting obligations.
• Review your past filings and determine whether anything needs to be corrected.
The IRS itself confirms that these letters are not an audit. But that does not mean you should casually respond.
Letter 6173 can require a formal response, and depending on what you send back, you could be making statements about prior tax returns that have serious consequences later.
DO NOT SIGN OR SEND ANYTHING BACK WITHOUT GETTING PROFESSIONAL ADVICE FIRST.
Now we’re also seeing CP2000 and CP2501 notices. These are more serious from a response standpoint.
A CP2501 is generally issued when third-party information received by the IRS does not match what appeared on your tax return. The IRS requires a response.
A CP2000 proposes changes to your tax return based on a discrepancy the IRS believes it has identified. It is not automatically a bill, and the proposed amount is not automatically correct.
For crypto traders, that distinction is extremely important.
Exchange data, 1099 reporting, missing cost basis, and transaction mismatches can produce numbers that look very different from your actual taxable gain.
What concerns me most
We are not talking about a single client receiving a random notice.
We have now seen 8 crypto taxpayers come to us with these IRS notices in an unusually short period.
That does not prove the IRS has officially launched a new enforcement campaign, although I do have my suspicions.
But it does tell me something has changed in the volume of correspondence reaching crypto traders.
If you receive one:
1. Do not panic.
2. Do not ignore it.
3. Do not assume the IRS calculation is correct.
And most importantly:
DO NOT SIGN OR RESPOND TO ANY IRS LETTER UNTIL YOU UNDERSTAND EXACTLY WHAT YOU ARE AGREEING TO.
Upload the letter to CryptoTaxAudit and have it reviewed before taking action. We will email you back explaining what the letter means and how you should proceed.
Please share this with other crypto traders.
The more people understand these letters before responding, the fewer people will accidentally make their situation worse.
cryptotaxaudit.com/audit-let…