IRS Crackdown Escalates: Why Crypto Investors Are Getting Flooded With Warning Letters
The taxman cometh—with a blockchain ledger in hand. As the IRS ramps up enforcement, crypto holders are finding out the hard way that anonymity doesn’t mean tax immunity.
The Paper Trail They Said Didn’t Exist
Exchanges now hand over transaction histories like clockwork. Forget ‘not your keys, not your coins’—try ‘not your records, still your problem.’
Audits Don’t Care About Bull Markets
Whether your portfolio’s mooning or cratering, Uncle Sam wants his cut. Pro tip: Those ‘forgotten’ 2018 trades? They remember.
The Fine Print You Pretended to Read
Decentralization’s great until you realize tax forms are centralized by design. Even your DeFi yield farming counts as income—shocking exactly no CPA.
The irony? Traditional finance spends millions lobbying for loopholes. Crypto bros just YOLO’d into creating audit bait. Maybe add ‘tax attorney’ to your next Twitter bio.
Types of the letters
Mainly, crypto investors receive three types of letters from the IRS: 6173, 6174, and CP2000. Form 6174 is regarded as the least disturbing, as it has solely an informational purpose and doesn’t require action. It is a “soft notice” letter and, basically, it can be ignored.
Got one too “Letter 6174-A” Told don’t respond you are self incriminating yourself. Still speak with a crypto tax professional since every situation is different.
Love how they said this in the letter. pic.twitter.com/MNwU6xYTjZ
Still, it signals that the IRS is aware of your involvement in crypto investment. If the IRS believes the taxpayer has done something wrong, it may send more urgent letters later. Letter 6174 may be seen as a good reason to check if previous reports were made correctly.
6174 doesn’t indicate that the IRS is aware of any wrongdoing. Taxpayers may receive this letter if they were using U.S.-based exchanges, such as Kraken, Coinbase, Binance US, and others. Another possible reason is that their crypto transactions were reported by someone using Form 1099-MISC or 1099-B. Finally, the receiver’s account could have been flagged by the IRS because of a third-party data match.
The 6173 and CP2000 letters are more urgent and require action. Letter 6173 is the letter that wasn’t frequent until 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 cannot be ignored as it unambiguously informs a taxpayer that they have allegedly underreported their crypto income, and the IRS can do an audit. The info about the taxpayers’ crypto transactions may be obtained by the IRS from the exchanges they use.
Discrepancies between reported crypto transactions and exchange data may lead to a 6173 letter. On top of a complete lack of reports on crypto, the reason may be errors in reporting—such as not reporting staking or mining rewards, not applying capital gains tax on crypto conversions, and more. A tax attorney can help fix the problems before the deadline indicated in the letter.
The CP2000 notice includes the specific amount that needed to be reported. The source of this letter is the Automated Underreporter Unit of the IRS, which generates due notices using computers. Given that these notices are generated automatically, there’s a chance they’re incorrect.
In some cases, CP2000 claims the taxpayer owes more in taxes than they actually do. Some forms may inform the taxpayer of a refund. If the amount is correct, the taxpayer may fill in the form and pay. If not, it’s better to dispute it. Calling a tax attorney may be an option.
Given how much info the IRS may gather, a proactive position of crypto investors and traders is a must. It’s better to work on tax reports diligently and be ready to respond to IRS letters in time. Usually, this means within a 30-day period.
The IRS vs. Trump Administration 2.0
The IRS will have more information about cryptocurrency transactions than before. That will happen this year as soon as Form 1099-DA is adopted. The pressure is rising, even as the crypto-friendly TRUMP Administration 2.0 is planning the abolition of the IRS itself and replacing it with tariffs. In January 2025, Congressman Earl Carter proposed a bill replacing the IRS with a consumption tax—meaning that prices would rise substantially.
Commerce Secretary Howard Lutnick explained that the plans to abolish the IRS are in line with the protectionist policies of Donald Trump. The replacement of the IRS with tariffs is summed up with the credo: “make the outsiders pay.”
It’s unclear whether Trump will actually abolish the IRS anytime soon, but the increased scrutiny of crypto transactions may only fuel supporters’ desire to shut the service down.
