The IRS sends three crypto-related letters: the 6174, the 6174-A, and the 6173. The 6174 is educational. The 6174-A is a suggestion to review your filing. The 6173 is neither educational nor suggestive. It's a demand. The IRS has information indicating you had cryptocurrency transactions and may not have reported them correctly. They want a response.
Why You Got This Letter
The IRS gets cryptocurrency transaction data from multiple sources. Exchange platforms report to the IRS via 1099 forms. The IRS has obtained records from major exchanges through John Doe summonses. Blockchain analysis firms help the IRS trace transactions across wallets and platforms. If you bought, sold, traded, or otherwise transacted in digital assets, the IRS may know about it.
The LTR 6173 means the IRS has specific information suggesting a discrepancy between what was reported to them and what appears on your tax return. This isn't a fishing expedition. They have data.
What to Do
You must respond. This isn't optional. The LTR 6173 requests that you either confirm your return is correct, file an amended return reporting the unreported transactions, or explain why you believe no correction is needed.
If you had crypto transactions you didn't report, file amended returns for the affected years. Calculate the gain or loss on each transaction using your actual cost basis. Report each transaction on Form 8949 and Schedule D. If you used crypto for payments, mining income, staking rewards, airdrops, or DeFi transactions, each has specific reporting requirements.
Cost Basis Issues
The biggest challenge in crypto tax reporting is cost basis. If you bought Bitcoin in 2017 at $4,000 and sold it in 2024 at $60,000, your gain is $56,000, not $60,000. But if you can't document your purchase price, the IRS may treat your basis as zero and tax you on the full sale amount.
Reconstructing cost basis requires exchange records, wallet histories, and blockchain data. If you used multiple exchanges or moved crypto between wallets, this can be complex. Professional help is worth the investment because inaccurate basis reporting can result in dramatically overstated tax.
The Voluntary Disclosure Option
If your unreported crypto transactions are substantial, the IRS's Voluntary Disclosure Practice may be appropriate. Voluntary disclosure can eliminate the risk of criminal prosecution in exchange for full cooperation and payment of taxes, interest, and penalties. This is a decision to make with professional guidance.
If you've received an LTR 6173, call us at (813) 229-7100. We handle crypto tax issues and know how to respond to these letters.