On July 26, 2019, the IRS announced that it had begun sending letters to taxpayers who may have failed to properly report income and pay any tax associated with cryptocurrency (which the IRS calls “virtual currency”) transactions or who did not properly report such transactions. The IRS expects to send more than 10,000 letters before the end of August.
There are three variations of what the IRS is calling “educational letters” — “Letter 6173,” “Letter 6174,” and “Letter 6174-A” — which are designed to assist taxpayers with understanding their tax and reporting obligations and how to address any errors. The letters vary in severity, ranging from a suggestion to confirm whether a reporting error or deficiency exists to an allegation of a reporting omission requiring a response. Which variation of the letter a taxpayer receives will depend on the information the IRS has about the recipient.
Taxpayers who have not properly reported their cryptocurrency transactions are, where appropriate, liable for tax, penalties, and interest, and in certain cases, may be subject to criminal prosecution.