These days, the Inside Income Service has ramped up the frequency of warning letters despatched to cryptocurrency traders. Stories point out that the majority recipients obtain one among three letter varieties: 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; nonetheless, ignoring this a part of monetary life could also be harmful. Essentially the most vivid instance is using 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 yr. It’s the first cryptocurrency-specific tax type by the IRS.
Some traders discover the warning letters strategy 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 revenue correctly. Let’s test what these letters imply virtually.
Kinds of the letters
Primarily, crypto traders obtain three varieties of letters from the IRS: 6173, 6174, and CP2000. Kind 6174 is thought to be the least disturbing, because it has solely an informational objective and doesn’t require motion. It’s a “soft notice” letter and, principally, it may be ignored.
Nonetheless, it indicators that the IRS is conscious of your involvement in crypto funding. If the IRS believes the taxpayer has executed one thing improper, it might ship extra pressing letters later. Letter 6174 could also be seen as motive to test if earlier experiences have 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 have been utilizing U.S.-based exchanges, resembling Kraken, Coinbase, Binance US, and others. One other potential motive is that their crypto transactions have been reported by somebody utilizing Kind 1099-MISC or 1099-B. Lastly, the receiver’s account may have been flagged by the IRS due to a third-party information 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 revenue, and the IRS can do an audit. The information 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 alternate information might result in a 6173 letter. On high of an entire lack of experiences on crypto, the explanation could also be errors in reporting—resembling not reporting staking or mining rewards, not making use of capital good points 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 routinely, 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 appropriate, 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 traders and merchants is a should. It’s higher to work on tax experiences diligently and be prepared to answer IRS letters in time. Normally, 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 yr as quickly as Kind 1099-DA is adopted. The stress 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—which 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 substitute of the IRS with tariffs is summed up with the credo: “make the outsiders pay.”
It’s unclear whether or not Trump will truly abolish the IRS anytime quickly, however the elevated scrutiny of crypto transactions might solely gasoline supporters’ want to close the service down.
