IRS letters 6174, 6173 for Crypto Taxes

Written by Pat Larsen

The IRS has started to send out letters to Coinbase account holders who have not filed capital gains taxes on their cryptocurrency trades. Thousands of these letters have gone out so far, so if you got one, you are not being singled out. The purpose of these letters is education to the taxpayers about cryptocurrency and tax compliance. 

These mailings are probably not incredibly targeted, but they are a wake up call that investors need to take tax compliance seriously going forward and that US based exchanges like Coinbase, Bittrex, Gemini, and Kraken among others are going to be under regulatory scrutiny. Expect 1099’s from your exchanges and expect the IRS to care about tax collection and crypto. 

Here is the notice from the IRS website:

https://www.irs.gov/newsroom/irs-has-begun-sending-letters-to-virtual-currency-owners-advising-them-to-pay-back-taxes-file-amended-returns-part-of-agencys-larger-efforts

Get Your Accounting in Order

If you receive a letter from the IRS you should first you should get your accounting in order using ZenLedger and then consult your legal or tax advisor. It may be that your 2018 losses far exceed your 2017 gains and you simply need to amend your filings to bring everything current. But you have to get your house in order before you can proceed. 

Types of Letters

Letter 6174. This is a notice informing the taxpayer that there is a likelihood that they did not report their virtual currency transactions. The notice asks you to check their return and, if necessary, file an amended return to correct the misreporting. The taxpayer is not required to respond to the notice and the IRS intends not to follow up on these notices. 

Letter 6174-A.  this letter is more stern. As in Letter 6174, this letter tells the taxpayer that there is potential misreporting of virtual currency transactions. However, this notice states that the IRS may follow-up with future enforcement action. Again, no response is required if the taxpayer believes that they are in compliance. Taxpayers who receive this notice should be aware that they have been put on “notice” that they have been identified as a noncompliant taxpayer for potential future enforcement.

Letter 6173. This notice requests a response from the taxpayer about the alleged noncompliance. The letter provides instructions on responding to the IRS. The IRS intends to follow up on these responses to determine if the taxpayer is in compliance.

Remain Calm

If you have correctly filed already, this letter can be ignored because you are already compliant. It is up to you and your advisors if you wish to reply with a letter stating this case. 

Should I restate my filing?

Receiving this letter does not mean you are under criminal investigation- the IRS generally does not notify you if you are. 

Being on this list may increase your chances of getting audited, but we won’t know that until it actually starts happening. 

If you think that you need to restate your past tax returns, after consulting your tax and legal advisors, then you have time to do so. 

Also remember that some of your crypto transactions will be categorized as capital gains and that some may need to be classified as income (airdrops, forks, staking, mining, etc). 

Need Help?

Please contact us if you have received a letter from the IRS or have any questions.

Email: hello@zenledger.io