IRS Virtual Currency Letters

The IRS sent more than 10,000 taxpayers letters about their cryptocurrency this summer. Taxpayers received letter 6173, 6174, or 6174-A if their name came up during various ongoing compliance efforts.

“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

If your clients have cryptocurrency and received a letter, you may need to help them file a return or an amendment. We are breaking down each type of letter for you here, so you know what action you might need to help your client take.

Taxpayers received one of three versions of the letter:

Letter 6173 was sent if the IRS thought the taxpayer might have failed to report cryptocurrency transactions, and that a return for one or more of the years from 2013-2017 had not been received. If all those returns have been filed, the letter says a form or schedule is missing. This letter requires a response by a specific date.

Letter 6174 was sent to taxpayers who definitely hold cryptocurrency accounts and explains reporting requirements for taxation of virtual currency. The letter also warns that if the taxpayer believes there is an error in prior year returns, or if returns were not filed on time, that they should rectify the situation. This letter does not require a direct response.

Letter 6174-A was sent to taxpayers whom the IRS believes may have failed to report transactions. The IRS knows the taxpayer has one or more cryptocurrency accounts and feels purchases made with cryptocurrency may not have been appropriately reported. This letter also does not require a response.

According to the IRS, virtual currency is treated as property for federal tax purposes. For more information on how that can affect your clients, read IRS Notice 2014-21.

If your client received Letter 6173 and their returns from years 2013-2017 appear to be complete and filed on time, they could request a wage and income transcript. This transcript shows data the IRS received about their income. Whatever the discrepancy, file the return or amendment as soon as possible.

For more information, read the IRS News Release here.

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