The three crypto letters
- Letter 6173 requires a response. It says the IRS has information that you may not have reported virtual currency transactions correctly and asks you to respond by the date shown.
- Letter 6174 is informational. It tells you that you may have to report virtual currency transactions and pay tax on them.
- Letter 6174-A is a stronger informational letter. It says you may not have reported your transactions properly and encourages you to review your returns and amend them if needed.
None of these is an audit by itself. But each is a sign the IRS has data about your crypto activity, and ignoring them can lead to an examination.
CP2000 notices and Form 1099-DA
A CP2000 is an automated notice proposing changes when income reported to the IRS doesn't match your return. Now that exchanges file Form 1099-DA, many of these will involve crypto, and many will be wrong, because a 1099-DA often shows sale proceeds without your cost basis. The IRS's proposed tax can treat the entire sale price as profit.
How to respond
- Note the deadline and don't miss it.
- Don't simply pay a proposed amount before checking it.
- Reconstruct your activity across exchanges and wallets, including cost basis.
- Respond or amend with documentation, and correct any other affected years.
Frequently asked questions
Is Letter 6173 an audit?
No, but it requires a response by the date in the letter. If you don't respond, the IRS may open an examination.
I got Letter 6174. Do I need to do anything?
It doesn't require a response, but it's a signal to review your past returns. If crypto activity was missed or misreported, amending now is far better than waiting.
My CP2000 says I owe tax on my entire crypto sale. Is that right?
Often not. If the 1099-DA didn't include your cost basis, the IRS calculation may overstate your gain. You can respond with documentation of your actual basis.
Should I amend my old returns?
If they're wrong, usually yes, but the order and approach matter. We'll review the years involved and recommend a plan.