If you received IRS Letter 6174 about cryptocurrency, you are not alone, and the timing is not random. The IRS has restarted and expanded these digital-asset compliance letters, and recipients are reaching out with the same worry: what does this letter actually mean, and do I have to do something? This guide explains Letter 6174, how it differs from the related 6174-A and 6173 letters and a CP2000 notice, why the IRS is sending them again, and the options in front of you. Throughout, the honest bottom line is the same: a letter that requires no response can still be a warning worth taking seriously.

What is IRS Letter 6174?

Letter 6174 is the mildest of the IRS cryptocurrency compliance letters. It is educational in tone. The IRS is telling you that it received information, typically from a cryptocurrency exchange, indicating you hold or transact in digital assets, and it is reminding you of the rules for reporting virtual-currency transactions. The letter does not accuse you of anything and does not demand a reply. In practice, it is best understood as a signal: the IRS knows, and it is inviting voluntary compliance before taking a harder look.

Letter 6174 vs. 6174-A vs. 6173 vs. CP2000

The four notices crypto holders most often confuse sit on a ladder of seriousness. The table below shows where Letter 6174 falls and what separates it from the others.

Does Letter 6174 require a response?

No. Unlike Letter 6173, which generally calls for a response within about 30 days, and unlike a CP2000, which carries a hard deadline, Letter 6174 asks for nothing. You can set it down and do nothing, and you will not have missed a deadline. The real question is not whether a response is required. It is whether your past crypto reporting was correct. If it was, the letter can be filed away. If it was not, the absence of a deadline is a window, not a dismissal, and that window does not stay open forever.

Why is the IRS sending Letter 6174 again?

The IRS sent a large batch of these letters in 2019, then went quiet. They are back, and the reason is data. Cryptocurrency exchange reporting has expanded sharply, the new Form 1099-DA brings digital-asset transactions into routine information reporting, and the IRS has continued to obtain customer records from major exchanges through John Doe summonses and other requests. The agency now has far more third-party information to match against filed returns, and letters like 6174 are how it puts taxpayers on notice that a mismatch may exist. In short, the letters are rising again because the IRS can finally see more of the picture.

What Letter 6174 means for your situation

The right next step depends entirely on your facts. A few common patterns capture most recipients.

You reported your crypto correctly

If you reported your taxable crypto activity accurately in the years at issue, Letter 6174 may genuinely call for no action. It can still be worth a short privileged review to confirm there are no gaps you are not aware of, especially across multiple years or multiple exchanges.

You have unreported crypto from prior years

Many recipients traded on an exchange years ago and never reported it, sometimes because they did not realize a sale was reportable. If that describes you, the letter is a prompt to come into compliance on your terms rather than the government’s. Depending on the facts, that can mean amended returns or a formal voluntary disclosure, and the choice is a legal one that turns on whether the earlier underreporting could be viewed as willful.

You sold at a loss and assumed you did not have to report

A very common and costly misunderstanding is that selling cryptocurrency at an overall loss means there was nothing to report. A sale or exchange of crypto is a reportable disposition whether you gained or lost, and an unreported disposition is exactly the kind of gap that produces a 6174 letter. The good news is that an overall loss often means little or no tax was actually due, so fixing the reporting is frequently less painful than people fear.

You lost crypto to a scam or theft

If you lost cryptocurrency in a phishing scam, a fraudulent platform, or a “pig butchering” scheme, you may have a theft-loss issue layered on top of the letter, and a potential deduction worth real money if it is handled correctly. The federal and California treatment of these losses is technical and fact-specific. See how to claim a crypto theft-loss deduction.

Crypto on foreign exchanges adds a second layer

If your digital assets sat on a non-U.S. exchange or in offshore wallets, a crypto letter can sit on top of separate foreign-reporting duties, including the FBAR and related forms. Those rules carry their own penalties and their own compliance paths, so they need to be addressed together rather than in isolation. Our cryptocurrency accounting and audits practice handles the crypto and foreign-reporting sides as one problem.

What you should not do

Do not ignore the letter if you know your prior reporting was incomplete, and do not rush to amend on your own without understanding whether the conduct could be viewed as willful. A hurried “quiet” amendment can, in the wrong case, create a record the government later uses. The safest first move is a privileged conversation with a tax attorney, because only an attorney can assess your exposure under attorney-client privilege before anything is filed.

How Kugelman Law helps

We advise cryptocurrency holders who receive IRS compliance letters and represent them across the full range of responses, from confirming that no action is needed to amended returns, voluntary disclosure, and audit defense if a matter escalates. Every engagement starts with a privileged assessment of exposure. For matters that reach into IRS examinations, former IRS Revenue Agent Otto Bosch leads the firm’s federal audit-defense work, and you can read how a former agent approaches crypto tax audit defense.

Our results reflect what disciplined advocacy achieves in high-stakes tax disputes. In one federal matter, two IRS Notices of Deficiency proposing more than $557,000 across six years were settled in U.S. Tax Court down to roughly $38,000, and with avoided interest and California exposure the client effectively saved over $1.2 million. Results depend on specific facts. Past results do not guarantee future outcomes.

Talk to a crypto tax attorney about your Letter 6174

If you received IRS Letter 6174 and are not certain your prior crypto reporting was complete, get a privileged assessment before you decide anything. Schedule a paid, privileged consultation with Kugelman Law by calling (415) 968-1780 or visiting our contact page.

Frequently asked questions

Is IRS Letter 6174 an audit?

No. Letter 6174 is an educational compliance letter, not an audit and not a bill. It signals that the IRS has information about your cryptocurrency activity and wants to be sure you reported it correctly. It can, however, be a step on the path toward an examination if a real reporting gap exists and goes unaddressed.

Do I have to respond to Letter 6174?

No response is required. That is what separates it from Letter 6173, which generally requires a response within about 30 days, and from a CP2000, which has a firm deadline. The absence of a required response does not mean the letter is meaningless; it means you have an opportunity to fix any prior-year problem on your own timeline.

What happens if I ignore Letter 6174?

If your reporting was accurate, ignoring it may carry no consequence. If your reporting was not accurate, ignoring it does not make the issue go away. The IRS already has the underlying data, and the matter can escalate to a 6173 letter, a CP2000, or an audit. It is far better to address a known gap while you still control the timing.

Why did I get Letter 6174 if I only sold crypto at a loss?

Because a sale is reportable even when you lose money. The IRS received information that you disposed of cryptocurrency, and if that disposition was not reported, the data does not match your return, regardless of whether the result was a gain or a loss. Correcting the reporting is usually straightforward, and an overall loss often means little or no additional tax.

Should I amend my tax returns after getting Letter 6174?

Possibly, but that is a legal decision, not a bookkeeping one. For genuinely honest mistakes, amended returns may be the right fix. If there is any chance the earlier conduct could be seen as willful, a bare amendment can backfire, and a formal path may fit better. Have the exposure assessed under privilege before you file.

Can the IRS see my Coinbase or other exchange history?

Increasingly, yes. Through expanded exchange reporting, Form 1099-DA, and summonses served on major exchanges, the IRS has obtained large volumes of customer transaction data. Assume the IRS can see more of your history than you expect, and reconstruct your own records accordingly.

About the author

Alex Kugelman is the founder and managing attorney of Kugelman Law and is nationally recognized for cryptocurrency tax. He has spoken on digital-asset tax and IRS enforcement on the Bitcoin.tax podcast and The Mark Milton Show. With nearly two decades of federal tax controversy experience, he is admitted in California and before the U.S. Supreme Court, the U.S. Tax Court, and the U.S. District Court for the Northern and Eastern Districts of California, and served as San Francisco Chair of the Federal Bar Association Tax Division in 2018. For matters that reach into IRS examinations, his colleague Otto Bosch, a former IRS Revenue Agent from the Global High Wealth group, leads the firm’s federal audit-defense work.

This article is attorney advertising and general information, not legal advice. Whether a given letter requires action, and which compliance path fits, are fact-specific legal determinations. Contacting Kugelman Law does not create an attorney-client relationship.

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The rise of “pig butchering” crypto scams has left thousands of investors financially devastated. These sophisticated, long-con frauds build trust over months, convincing victims to invest huge sums into fake platforms before vanishing with the funds.

If you have fallen victim to one of these schemes, you know the pain is not just emotional—it is a financial catastrophe. However, there may be a way to mitigate the damage through the tax code.

Under Internal Revenue Code (IRC) § 165(c)(2) and recent IRS guidance, victims of fraudulent investment schemes may be eligible to claim a theft loss deduction. At Kugelman Law, we specialize in helping clients substantiate these claims to validly reduce their taxable income.

The Legal Basis: IRC § 165(c)(2) and IRS Guidance

Historically, the Tax Cuts and Jobs Act of 2017 suspended “personal casualty and theft losses” for individuals from 2018 through 2025. This led many to believe that all theft losses were non-deductible. This is not true.

The suspension applies to personal losses (like a stolen watch or a burglary). It does not apply to losses incurred in a “transaction entered into for profit.”

A recent IRS Chief Counsel Memorandum (No. 202511015) specifically analyzed the tax treatment of pig butchering crypto scams. The IRS concluded that because victims transferred funds with the clear intent to invest and generate a profit, these losses can be classified as investment theft losses under IRC § 165(c)(2), rather than disallowed personal losses.

Key Eligibility Requirements

To claim this deduction successfully, you must meet specific criteria:

• Proven Theft: You must show that the taking of your property was illegal under state law and done with criminal intent (e.g., fraud, larceny, or embezzlement).
• Profit Motive: You must demonstrate that your primary motive for transferring the funds was to make an investment profit. This distinguishes your case from “romance scams” where funds are sent as gifts or for personal help, which the IRS typically disallows.
• No Reasonable Prospect of Recovery: You must determine that the loss is permanent and that there is no likely path to recovering your funds from the scammers or a third party (like insurance).

How Kugelman Law Can Help

Claiming a theft loss deduction is a high-stakes tax position. It requires meticulous documentation to survive IRS scrutiny, similar to the rigor required for cryptocurrency audits. We help victims report this loss correctly and defensibly.

1. Tax Return Preparation & Reporting

We can prepare your tax return to properly report the theft loss. This involves calculating your “cost basis” (the actual amount of money you put in, not the fake “gains” shown on the scam website) and filing the appropriate forms to claim the deduction against your taxable income.

2. Legal Opinion Letter

For significant losses, we highly recommend a formal Legal Opinion Letter. This document details the facts of your case, applies the relevant tax law (including the new Chief Counsel Memo), and provides a legal conclusion on your eligibility for the deduction. This serves as your primary defense should the IRS ever question the claim.

An opinion letter serves two primary purposes: (1) reasonable reliance defense against penalties if a tax agency audits the return and proposes penalties and (2) real time documentation and analysis that is ready to go in the event there is an audit.  

3. Comprehensive Package

We offer a combined service that includes both the legal opinion letter and the full preparation of your tax return.

Necessary Documentation

To substantiate your claim, we will need to compile a comprehensive evidence file, including:

• Complete Account Statements: Bank ledgers and crypto exchange records showing the trail of funds moving from your possession to the scammer’s wallets.
• Proof of Investment Intent: Screenshots of the fake trading platform, “account balances,” and logs of communications with the scammers where investment returns were discussed.
• Law Enforcement Reports: To prove the loss was a “theft” and not just a bad investment, you must file reports with authorities. We recommend filing with:
  • FBI via IC3: https://www.ic3.gov/
  • Secret Service Cyber Crime Task Force: https://www.secretservice.gov/
  • FTC Report Fraud: https://reportfraud.ftc.gov/
  • Your local police or sheriff’s department.

A Note on Civil Recovery

Please note that Kugelman Law focuses exclusively on the tax reporting and deduction aspect of your loss. We generally do not handle civil asset recovery (suing to get the money back) on a contingency basis.

However, we can refer you to attorneys who specialize in civil recovery for these types of fraud.

Take the Next Step

If you have suffered a loss from a pig butchering or crypto investment scam, do not let the tax implications add insult to injury. You may be able to recoup some of your losses through a lower tax bill. If you need help, our tax resolution attorneys can guide you through the process.

Contact Kugelman Law today to schedule a consultation and discuss your eligibility for a theft loss deduction.

Disclaimer: This post is for informational purposes only and does not constitute legal or tax advice. Consult a qualified professional for guidance on your specific situation.