Guide to IRS Letters: 6173, 6174, and CP2000

IRS Letters 6173, 6174, and 6174-A are part of the IRS' efforts to address tax compliance in cryptocurrency. These letters alert taxpayers about potential underreporting of their crypto earnings and encourage corrective actions.

• IRS Letter 6173: The most serious of the three, requiring a mandatory response by the deadline stated in the letter.

• IRS Letters 6174 and 6174-A: If you receive IRS Letter 6174 or 6174-A, you generally do not need to respond, but you should review your reporting and amend if you find mistakes.

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Why did you receive an IRS crypto letter?

The IRS may send these letters if:

• They received information from crypto exchanges or other sources about your crypto activity.

• There are discrepancies between your reported income and their records.

• You failed to include cryptocurrency transactions in your tax return.

Letters 6173, 6174, and 6174-A aim to increase compliance and remind taxpayers of their obligations.

IRS Letter 6173

IRS Letter 6173 is the most serious crypto tax letter. It requires action by a specified deadline, typically including:

1. Filing an amended return to report previously unreported crypto transactions.

2. Providing documentation to verify the accuracy of your prior filings.

Failure to respond can result in further IRS action, including audits or penalties.

What if I don’t respond to a 6173 letter?

IRS Letter 6173 asks you to take action by the response deadline shown in the letter. If the IRS does not hear from you by that date, they may refer your account for examination, and any underpayments can be subject to penalties and interest.

"Ignoring a 6173 letter can complicate matters. The IRS takes these letters seriously, and silence is often interpreted as noncompliance. Whether filing an amended return or providing additional documentation, taking prompt, informed action is the best way to minimize risks and achieve compliance."

- Ty Gaines, EA, Tax Expert at TokenTax

IRS Letter 6174 and 6174-A

Letters 6174 and 6174-A are less severe than 6173 but still important. They indicate that the IRS believes you may not have reported all your crypto transactions.

• Letter 6174: Encourages you to review your returns and file amendments if necessary.

• Letter 6174-A: Similar to 6174, slightly stronger language suggesting possible underreporting.

These letters serve as warnings and provide an opportunity to correct errors before the IRS takes further action.

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The IRS issues a CP2000 notice when they find discrepancies between your tax return and the information they have on file. It requires a response, which allows you to:

1. Agree with the proposed changes and pay the amount owed.

2. Dispute the changes by providing supporting documentation.

The IRS' data may be incomplete, particularly for crypto transactions, so preparing accurate records and using crypto tax software to reconcile discrepancies is essential.

What to do if you didn’t report crypto on your returns

If you realize you didn’t report crypto income or transactions:

1. File an amended return using Form 1040-X.

2. Include all crypto earnings and ensure accurate calculations.

3. Use crypto tax software like TokenTax to generate detailed reports.

Proactively addressing unreported income can help minimize penalties and interest.

What if I reported my crypto and still received a letter?

If you accurately reported your crypto transactions but still received an IRS letter:

1. Double-check your records and ensure all transactions are accounted for.

2. Respond with supporting documentation, such as CSV files or transaction history.

3. Contact a crypto tax professional to resolve any discrepancies.

TokenTax specializes in assisting clients with IRS crypto letters. Our platform generates accurate tax documents, including Form 8949, and our expert team guides you through responses to IRS letters like 6173, 6174, and CP2000.