Home News Got a Crypto Tax Letter? CEO of Koinly.io Explains What to Do

Got a Crypto Tax Letter? CEO of Koinly.io Explains What to Do

TL;DR: It has been in the news recently that the IRS began sending tax letters to crypto investors who they believe have hidden or defaulted on their taxes or hidden tax returns. This is all part of their recent crackdown on cryptocurrency taxation. Have you received one of these letters? Well, then this article is just what you need. We will be discussing what these letters mean and how you should respond to them.

Got a Crypto Tax Letter?

Even if you haven’t received a letter from the IRS, you should always be two steps ahead and prepared for anything. Check all your records and ensure you have not fallen behind on your taxes. Moreover, not receiving a letter doesn’t mean you’re in the clear. You should amend your taxes and be careful not to break any rules while doing so. Where possible, or if you feel lost along the way, you should contact a professional for guidance to avoid any potentially expensive mistakes.

Tax

There are three versions of the letter: 6173, 6174 and 6174-A. These are all supposed to remind you of your tax filings and obligations. Receiving one of these letters doesn’t mean you’re guilty of anything, as they are more reminders. To be on the safe side, it is best to check your trades and make sure you are have followed or are following all the rules. You can use the IRS website to figure out which forms you need to fill out and where to send them. So, take a look at your previous reported tax filings and what you might have missed.

What exactly are the letters telling me?

If you have no idea what the letters mean, then this section is for you. Here is the meaning of each of them, so you know what you’re dealing with.

Letter 6173

If you received letter 6173, this means the IRS has information suggesting you have failed to report cryptocurrency gains. This is a warning and should be taken much more seriously than letters 6174 and 6174-A. This letter outlines that the IRS will follow up with a visit to make sure you have complied with the letter and filed your taxes appropriately. In simple terms, you are on their radar, and you need to take action. You should consult a lawyer for advice if you receive this letter to make sure you do everything you need to.

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Letter 6174

Letter 6174 is just for notice and isn’t accusing you of any wrongdoing at all. The IRS does not believe you need to report any previous crypto gains, and they will not be following up on anything. If you need to, you should amend your taxes accordingly, or you might find the IRS taking stronger action in the future. As a safety measure, go over your taxes again to ensure you’re in the clear.

Letter 6174-A

This letter is quite similar to the 6174 discussed previously. This letter doesn’t require you to respond, but you are still expected to report any crypto gains as soon as possible. The major difference between this letter and 6174 is that the IRS might follow up on it. This letter serves as a notice for the crypto investor to get their affairs in order as the IRS might be dropping by.

So, what now? Well, there are two categories of crypto investors: those in the clear and those who have defaulted. Let’s talk about that.

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Those in the Clear

If all your taxes are up to date and you do not owe the IRS anything, you can breathe a sigh of relief! You may have received letter 6174-A as part of a routine or generic process. It doesn’t mean that you are suspected of being a tax cheat. It is still a great idea, though, to closely review your tax returns and make sure your taxable cryptocurrency income has been accurately reported. To be honest, even if you’re in the clear, receiving the letter means that the IRS knows you are a crypto investor and so this is more of a reminder.

You should also note that 6147-A doesn’t require a response if you have previously reported your cryptocurrency income. Remember that not contacting the IRS is not considered to be a crime.

Those Who Have Defaulted

If you have not accurately reported your earnings, you would do well to get everything in order. If you are defaulting and you received this letter, you should follow the instructions and amend your tax returns as soon as possible. Where applicable, you should also contact a crypto tax accountant for expert guidance, so you can avoid making any mistakes. Try to amend your taxes as soon as you receive this letter to prevent any clashes with the law.

The IRS is not in the business of prosecuting taxpayers who default as long as they come forward before the IRS has to catch them. If you are afraid, you should reach out to the IRS as it was an honest mistake and the issue can be resolved amicably. You should also consult a lawyer for the best way forward and how to approach the issue. Also, remember that accountants do not enjoy the benefits of attorney-client privilege. So, if your reason for reporting was criminal in nature, you should talk to a lawyer instead of an accountant.

The Bottom Line

If you have received any of these letters, it is best that you act accordingly and contact the right people. As much as possible, try and get in touch with the right people every step of the way so you do not make any mistakes that might cost you greatly. If you are yet to receive any kind of letter, you should still go through your taxes to make sure you do not have any outstanding unpaid taxes and that you are legally compliant. For those with thousands of transactions, sifting through each one might be time-consuming but luckily there are crypto tax tools to help with that.

Robin Singh is the co-founder and CEO of Koinly.io – a cryptocurrency tax solution that automatically generates capital gains reports for USA, UK, Australia, Ireland and other countries.

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