The right one depends almost entirely on a single question, whether your prior underreporting was willful, and getting that judgment wrong can turn a fixable tax problem into a criminal one.

This article explains the options and the fork in the road. Because the stakes include potential criminal exposure, talk to a tax attorney before you file anything. Call (415) 968-1780.

What crypto voluntary disclosure actually means

Coming into compliance on unreported digital-asset income is not one procedure but a range of them, from simply filing amended returns to a formal disclosure through the IRS Criminal Investigation division. They differ enormously in cost, in paperwork, and above all in the protection they provide.

Choosing among them is a legal decision, not a bookkeeping one, and it should be made before you touch a return, because some moves cannot be undone once made.

The threshold question: was the underreporting willful?

Everything turns on willfulness. Willful means a voluntary, intentional violation of a known legal duty, roughly, you knew you owed tax on your crypto and chose not to report it. Non-willful covers honest mistakes, misunderstanding of confusing rules, or reasonable reliance on bad software or advice.

The distinction is a legal characterization with serious consequences, and reasonable-looking facts can point either way, which is exactly why this is assessed with counsel rather than assumed. If there is any realistic chance the conduct was willful, the safest paths change completely.

Your options, and when each fits

Amended returns

For genuinely non-willful, straightforward situations, filing accurate amended returns and paying the tax and interest may be enough. Timing matters: a qualified amended return filed before the IRS begins looking can head off certain penalties.

The danger is the so-called quiet disclosure, where a taxpayer with real exposure simply amends and hopes no one notices. The IRS discourages this, it provides no protection from prosecution, and a poorly handled amendment can itself become evidence. Amending is the right tool only when willfulness is genuinely not in the picture.

Streamlined Filing Compliance Procedures

The streamlined procedures are designed for non-willful taxpayers, most often those with unreported foreign accounts and assets. They can sharply reduce penalties, but they require a truthful certification of non-willful conduct under penalty of perjury, so they are off the table if the facts suggest willfulness.

If your crypto sat on foreign exchanges or in offshore structures, this path also intersects with foreign-reporting rules such as the FBAR. See our streamlined offshore procedures and delinquent FBAR pages.

The IRS Voluntary Disclosure Practice (Form 14457)

When willful conduct or real criminal exposure is on the table, the IRS Voluntary Disclosure Practice is the path built for it. Run through the Criminal Investigation division on Form 14457, which now includes a digital-asset section, it involves a preclearance step and a formal application. It is not amnesty. You will generally face a civil fraud penalty and a multi-year lookback, and you pay the tax and interest.

What it offers in return is the IRS’s practice of not recommending criminal prosecution for taxpayers who come forward truthfully and on time. For someone with genuine criminal exposure, that protection is the whole point.

Waiting

Waiting is a choice too, and it is getting riskier. With Form 1099-DA reporting, exchange summonses, and blockchain analytics, the odds that the IRS surfaces unreported crypto on its own keep rising. Timing is not just about risk, it is about eligibility: voluntary disclosure generally must be truly voluntary, meaning it is no longer available once the IRS has already contacted you or opened an examination or investigation. Waiting can quietly close the door on your best option.

Why this decision belongs with a tax attorney

Two features of these cases make counsel essential. First, the willfulness judgment is a legal one with criminal stakes, and it drives every other decision. Second, only a licensed attorney provides attorney-client privilege.

A conversation with a CPA or a return preparer about possibly willful conduct is generally not privileged, and that person can be compelled to testify. Working through the analysis with a tax attorney keeps the assessment confidential while you decide, and where an accountant is needed for the numbers, the attorney can engage one under privilege. Handled the wrong way, an attempt to fix the problem can create the very record the government would need.

How Kugelman Law helps

We advise cryptocurrency holders on coming into compliance and represent them across the range of options, from amended returns to streamlined submissions to formal voluntary disclosures, always starting with a privileged assessment of exposure.

Where a matter is already active, we defend it; see IRS crypto letters 6173, 6174, and 6174-A and how a former IRS agent approaches crypto audit defense. Our cryptocurrency accounting and audits service and our Los Angeles cryptocurrency tax attorney page describe the practice.

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 before you file

If you have unreported cryptocurrency and are weighing whether to amend, disclose, or wait, get a privileged assessment first. Schedule a paid, privileged consultation with Kugelman Law by calling (415) 968-1780 or visiting our contact page.

Frequently asked questions

Can I just amend my returns to fix unreported crypto?

Sometimes, if the underreporting was genuinely non-willful. For simple, honest-mistake situations, accurate amended returns and payment may be enough, and filing before the IRS starts looking can help. But if there is any chance the conduct was willful, a bare amendment (a quiet disclosure) provides no protection from prosecution and can become evidence. Assess it with counsel first.

Will voluntary disclosure protect me from criminal charges?

The IRS Voluntary Disclosure Practice is built around the IRS’s practice of not recommending prosecution for taxpayers who come forward truthfully and on time. It is not amnesty: you generally still owe the tax, interest, and a civil fraud penalty over a multi-year lookback. It is the path designed for cases with genuine criminal exposure.

What if the IRS already sent me a crypto letter?

A 6173, 6174, or 6174-A letter signals the IRS already has data on you, and it can affect which options remain. Do not respond casually. Speak with a tax attorney immediately, because your response and your timing both matter.

Is it too late to disclose once I am under audit?

Often, yes, for the formal program. Voluntary disclosure generally must be truly voluntary, so it is typically unavailable once the IRS has contacted you or opened an examination or criminal investigation. That is why waiting can eliminate your best option.

Do I need a lawyer, or can my CPA handle it?

For anything touching possible willfulness, you want an attorney. Only a licensed attorney provides attorney-client privilege; conversations with a CPA about potentially willful conduct are generally not privileged, and the CPA could be compelled to testify. An attorney can bring in an accountant under privilege when the numbers require it.

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 conduct is willful, and which compliance path fits, are fact-specific legal determinations. Contacting Kugelman Law does not create an attorney-client relationship.

It gathers that information from tax forms the exchanges file, from court-ordered summonses that pulled historical account records, and now from the new Form 1099-DA.

The practical lesson, from someone who spent years inside the IRS building these cases, is simple: do not guess at what the IRS can see, and do not assume old activity is invisible. Reconstruct your own full history so you know what they know. Call (415) 968-1780 for a privileged consultation.

I spent years as an IRS Revenue Agent before joining Kugelman Law, and the single most common mistake I saw from taxpayers was underestimating how much third-party data the government already had in front of it.

With cryptocurrency, that gap between what people think the IRS knows and what it actually knows is especially wide. Here is how to think about it when a 6174 arrives.

Does Coinbase report to the IRS?

Yes. For years, major U.S. exchanges have filed information returns with the IRS reporting certain customer activity, and the categories of what gets reported have steadily expanded. When an exchange files a form about you, the IRS receives a copy and can match it against your return.

If the exchange reported activity that your return does not reflect, that mismatch is visible to the IRS without anyone opening an audit. A compliance letter like 6174 is often the first outward sign that such a mismatch may exist.

How the IRS got your 2017 to 2019 history

This surprises people who assume early activity is too old to matter. Beyond routine information reporting, the IRS has used John Doe summonses, which are court-authorized demands for records on entire groups of unnamed users, to obtain historical account data directly from major exchanges.

Coinbase was the subject of one such effort years ago that produced records for thousands of accounts, and other platforms have faced similar summonses since. The result is that transaction history from the 2017 to 2019 era, the exact window many people assume is forgotten, may already sit in the IRS’s hands.

What a former IRS agent looks at first

When a return came across my desk, the starting point was always the same: compare what third parties reported against what the taxpayer reported, and look at the gap. For crypto, that means lining up exchange data and summons records against the dispositions and income shown on the return.

Unreported sales, transfers that were never explained, and years with activity but no digital-asset reporting all stand out quickly. None of this requires suspicion of fraud. It is simply where the data does not line up, and that is what examinations are built on.

Form 1099-DA changes the picture going forward

The new Form 1099-DA brings digital-asset transactions into routine, standardized information reporting, which means the matching the IRS already does for stocks and wages now extends more fully to crypto.

Going forward, the IRS will receive far more detailed and consistent exchange data, narrowing the room for unreported activity to go unnoticed. For a 6174 recipient, the takeaway is that the enforcement environment is getting tighter, not looser, so getting prior years right now is better than waiting for the data to catch up. Our explainer on Form 1099-DA covers what exchanges are reporting and when.

Why a 6174 means “reconstruct, don’t guess”

Because the IRS may already have a fuller picture of your history than you do, the worst move is to respond to the situation based on memory or a partial export. Pull your complete transaction history from every exchange and wallet you have used, going back as far as the records allow, and rebuild your cost basis and your gains and losses year by year. Only then can you see where your returns and the IRS’s data agree and where they do not.

Our cryptocurrency accounting and audits team does exactly this reconstruction, including for messy multi-exchange histories, and it is the foundation for any sound response.

What to do with that history once you have it

Once your history is reconstructed, the path forward depends on what it shows. If your prior reporting holds up, you have peace of mind and a record ready if the IRS ever asks. If it does not, you can decide, with counsel, whether amended returns or another compliance route fits, before the IRS moves.

For what the letter itself means and whether it requires a response, see our hub guide, IRS Letter 6174 (crypto): what it means and what to do, and for how we defend matters that reach examination, see crypto tax audit defense.

Talk to a crypto tax attorney about your exchange history

If you received Letter 6174 and are not sure what the IRS can see about your Coinbase or other exchange history, get a privileged assessment and reconstruct your records before you act. Schedule a paid, privileged consultation with Kugelman Law by calling (415) 968-1780 or visiting our contact page.

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.

Frequently asked questions

Does Coinbase report my transactions to the IRS?

Yes. Major U.S. exchanges file information returns with the IRS reporting certain customer activity, and the IRS receives a copy to match against your return. The scope of what is reported has expanded over time and grows further with Form 1099-DA.

Can the IRS see my crypto from 2017 or 2018?

Often yes. In addition to routine reporting, the IRS has used John Doe summonses to obtain historical records for large groups of exchange users, including from that era. Older activity you assume is forgotten may already be in the IRS’s hands.

What is a John Doe summons?

It is a court-authorized demand for records about a group of unnamed taxpayers who fit a description, rather than a single named person. The IRS has used them to compel major cryptocurrency exchanges to turn over account and transaction data for thousands of users at once.

What does Form 1099-DA mean for me?

It brings digital-asset transactions into standardized information reporting, so the IRS receives more detailed and consistent exchange data going forward. That makes unreported activity easier for the IRS to spot, which is why addressing prior years now is wise.

Should I pull my full transaction history after getting Letter 6174?

Yes. Reconstruct your complete history from every exchange and wallet and rebuild your gains and losses year by year. Because the IRS may already have a fuller picture than you do, responding from memory or a partial export is risky. A complete reconstruction is the foundation for any sound next step.

About the authors

Otto Bosch is a tax controversy attorney at Kugelman Law and a former IRS Revenue Agent from the Global High Wealth group of the IRS Large Business & International (LB&I) Division. He is admitted to practice before the U.S. Tax Court and in Missouri, has been an IRS Enrolled Agent since 2024, and holds an LL.M. in Taxation. Otto was quoted in Tax Notes in 2026 on IRS examination training and the LB&I audit campaign targeting deferred legal fee structures. His practice focuses on IRS audit defense, high-net-worth examinations, and U.S. Tax Court litigation.

Alex Kugelman, the firm’s founder and managing attorney, is nationally recognized for cryptocurrency tax and has spoken on digital-asset tax and IRS enforcement on the Bitcoin.tax podcast and The Mark Milton Show. Together they handle the crypto and examination sides of these matters as one team.

This article is attorney advertising and general information, not legal advice. What the IRS has on a given taxpayer, and the right response, are fact-specific. Contacting Kugelman Law does not create an attorney-client relationship.

The good news is that reporting a loss usually costs you little or nothing in tax, and it can actually save you money. If you did not report and now hold IRS Letter 6174, this explains what that means and how to fix it. Call (415) 968-1780 for a privileged consultation.

Plenty of honest taxpayers skipped reporting crypto sales for a simple reason: they lost money and assumed a loss was not the IRS’s business. It is. Understanding why turns a scary-looking letter into a manageable cleanup.

Do you have to report crypto if you sold at a loss?

Yes. For federal tax purposes, selling cryptocurrency, trading one coin for another, or using crypto to buy something are all dispositions of property, and dispositions are reported regardless of whether the result is a gain or a loss.

The IRS does not only want to hear about your winners. It expects every disposition on the return, with the loss calculated the same way a gain would be. A loss you never reported is still a missing transaction from the IRS’s point of view.

Why a loss still has to go on your return

Cryptocurrency is treated as property, so each sale is reported on Form 8949 and summarized on Schedule D, with your cost basis subtracted from your proceeds to produce a gain or a loss.

When an exchange reports your sale to the IRS but your return shows nothing, the records do not match. That mismatch is what the IRS’s matching systems flag, and it does not distinguish between a profitable sale you hid and a losing sale you simply assumed did not count.

Separately, recent returns ask a direct digital-asset question near the top of Form 1040, and answering it incorrectly while having unreported activity compounds the problem.

Reporting the loss can actually help you

Here is the part that surprises people. A reported capital loss is useful. It offsets capital gains dollar for dollar, and if your losses exceed your gains, you can generally deduct a limited amount against ordinary income each year and carry the rest forward to future years.

In other words, the transaction you left off the return because it “was just a loss” might have reduced your tax if you had reported it. Fixing the omission is not only about compliance; it can put money back on your side of the ledger.

What it means if you didn’t report and got Letter 6174

If you never reported those losing sales and then received IRS Letter 6174, the letter is telling you the IRS has data tying you to crypto activity that it does not see fully reflected on your returns. Letter 6174 is a soft, educational letter that requires no response, but it is not an all-clear. It is a prompt to get your prior filings right before the matter escalates.

For the full breakdown of the letter and how it compares to the stricter 6173 and CP2000 notices, see our guide, IRS Letter 6174 (crypto): what it means and what to do.

How to fix unreported loss years

The fix is usually straightforward, which is the reassuring news for most people in this situation. Where the earlier omission was an honest mistake, filing accurate amended returns that include the missing dispositions is often the right path, and because the transactions were losses, the additional tax is frequently small or zero.

The important caveats are two. First, you need accurate records to compute basis and proceeds across every year and every exchange, which can take some reconstruction. Second, if there is any chance the IRS could view earlier conduct as willful rather than a genuine misunderstanding, the analysis changes, and you should assess that under attorney-client privilege before filing anything.

Our cryptocurrency accounting and audits practice handles both the reconstruction and the legal judgment, and our guide to Form 1099-DA explains what exchanges are now reporting about you.

Talk to a crypto tax attorney before you amend

If you sold crypto at a loss, never reported it, and received Letter 6174, get a privileged review before you file. It is usually a fixable problem, and it is better fixed on your timeline than the IRS’s. Schedule a paid, privileged consultation with Kugelman Law by calling (415) 968-1780 or visiting our contact page.

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.

Frequently asked questions

Do I have to report crypto if I sold at a loss?

Yes. A sale or exchange of cryptocurrency is a reportable disposition whether it produced a gain or a loss. The loss is calculated and reported the same way a gain would be, on Form 8949 and Schedule D. Leaving it off creates a mismatch with the data the IRS receives from exchanges.

What happens if I never reported crypto losses from past years?

The transactions are treated as missing from your returns, which can trigger a compliance letter like 6174. The usual fix is accurate amended returns, and because the sales were losses, any additional tax is often small or zero. Assess your facts with counsel first if willfulness could be in question.

Can reporting a crypto loss lower my taxes?

Often, yes. Capital losses offset capital gains dollar for dollar, and net losses can generally offset a limited amount of ordinary income each year, with the remainder carried forward. A loss you failed to report may have reduced your tax if it had been included.

Why did I get Letter 6174 if I only lost money on crypto?

Because the IRS received information that you disposed of cryptocurrency, and it does not see those dispositions on your return. The system flags the mismatch regardless of whether you gained or lost. Letter 6174 requires no response, but it signals that your prior reporting should be reviewed.

Is it too late to fix old unreported crypto sales?

Usually not. Amended returns can correct prior years, subject to the applicable statute of limitations, and loss years are typically the least painful to fix. The key is accurate records and, where willfulness could be a question, a privileged assessment before filing.

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. How a given transaction is reported, and which compliance path fits, are fact-specific determinations. Contacting Kugelman Law does not create an attorney-client relationship.

Letter 6173 is different: it generally requires a written response within about 30 days, and ignoring it can trigger an examination. But “no response required” is not the same as “nothing to do.”

The letter you received tells you how urgently the IRS is looking, not whether your returns are actually correct. That second question is the one that matters. Call (415) 968-1780 for a privileged consultation.

The IRS has sent several different cryptocurrency letters, and they are easy to mix up. The number in the corner of the page decides whether a deadline is running against you right now, so the first step is simply knowing which letter you are holding. This guide breaks down the differences and tells you what to do with each.

The quick comparison

Letter 6174: no response, but a real signal

Letter 6174 is the mildest of the three. It is educational, it alleges no specific error, and it requires nothing from you. If your crypto was reported accurately, you can file it away. T

he reason it still matters is that the IRS does not send these at random. It sends them because it received third-party information, usually from an exchange, tying you to digital-asset activity. If your reporting had gaps, the letter is a quiet, deadline-free chance to fix them before the IRS escalates.

Letter 6174-A: still no deadline, slightly sharper edge

Letter 6174-A looks almost identical to 6174 and also requires no response, but the wording carries a stronger hint that the IRS suspects your reporting may be incomplete, and it signals that follow-up action is possible. Treat 6174-A as a clearer nudge to review your prior returns than 6174. The absence of a deadline is an opportunity to get ahead of a problem, not a sign that one does not exist.

Letter 6173: this one has a clock

Letter 6173 is the serious one. Here the IRS is telling you it believes your returns are incomplete or incorrect, and it generally requires a written response within about 30 days. Your options usually include filing missing or amended returns, or submitting a statement, under penalties of perjury, explaining why you believe you already complied.

Ignoring a 6173 is itself a problem, because non-response can move the matter toward an examination. If you are holding a 6173, do not improvise. The response and its timing both carry weight, and this is the point to involve a tax attorney.

And a CP2000 is a different animal

If what you received is a CP2000 rather than a 6173 or 6174, you are a step further along. A CP2000 is not a soft letter; it is a proposed adjustment showing a calculated balance due because the IRS’s data did not match your return, and it carries a firm deadline. It is not a final bill, and the proposed numbers are often wrong or incomplete, but it must be answered on time and carefully.

The question that actually matters

Whichever letter you received, the deadline on the page is the smaller issue. The larger one is whether your past crypto reporting was complete and correct. A 6174 with accurate returns behind it may need no action at all. A 6174 sitting on top of years of unreported trades is a problem that will not improve with time, deadline or no deadline, because the IRS already has the underlying data.

The letter tells you how fast the IRS is moving. Your records tell you how exposed you are. Sort out the second question, ideally under attorney-client privilege, and the right response to the letter follows from it.

What to do next

Start by confirming which letter you have, then get your prior-year crypto position reviewed before you respond or amend. For the full picture of what Letter 6174 means and your options, see our hub guide, IRS Letter 6174 (crypto): what it means and what to do.

For how the firm defends matters that have already reached examination, see crypto tax audit defense and our cryptocurrency accounting and audits practice.

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

If you are unsure which letter you received or what your exposure is, get a privileged assessment before you act. Schedule a paid, privileged consultation with Kugelman Law by calling (415) 968-1780 or visiting our contact page.

Frequently asked questions

Do I have to respond to IRS Letter 6174?

No. Letter 6174 does not require a response and carries no deadline. It is an educational letter telling you the IRS has information about your cryptocurrency activity. If your returns were accurate, no action may be needed; if they were not, you should address the gap even though nothing is formally due.

What is the difference between Letter 6174 and 6174-A?

Both are soft letters that require no response. The difference is tone: 6174-A more directly suggests the IRS believes your reporting may be incomplete and that it may follow up, while 6174 alleges no specific error. Treat 6174-A as the stronger warning.

Does Letter 6173 require a response?

Yes. Letter 6173 generally requires a written response within about 30 days, and non-response can trigger an examination. You may need to file missing or amended returns or submit a signed explanation. Because the response and its timing both matter, this is the point to involve a tax attorney.

What happens if I do nothing after a 6174 or 6174-A?

If your reporting was correct, likely nothing. If it was not, the issue does not disappear. The IRS already has the data, and the matter can escalate to a 6173, a CP2000, or an audit. Addressing a known gap early keeps the timing in your control.

Is a crypto letter the same as being audited?

No. None of these letters is an audit by itself. They are compliance and matching notices. They can, however, precede an examination if a real reporting problem exists and goes unaddressed.

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.

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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Why? Because automated software struggles with complex DeFi transactions, cross-exchange transfers, staking rewards, and missing data. When the software encounters a transfer it doesn’t understand, it assumes a zero-cost basis, resulting in massive, phantom tax liabilities.

At Kugelman Law, we know that true professional crypto tax accounting requires a human touch. We provide a white-glove, forensic accounting service designed not just to file your taxes, but to bulletproof your returns against IRS scrutiny. Here is an inside look at our meticulous crypto tax reconciliation process and why our approach sets the industry standard.

Phase 1: Starting at “Day Zero” with Raw Data

Automated software often relies on high-level gain/loss reports generated by the exchanges themselves. We don’t. Our process begins on Day Zero—the exact day you acquired your very first fraction of cryptocurrency.

We require the raw, unedited crypto transaction logs from every single place you have ever transacted. This includes:

• Centralized exchanges (Coinbase, Kraken, Binance, etc.)
• Hardware and software wallets (Ledger, MetaMask, Trust Wallet)
• DeFi protocols, staking pools, and gaming sites

The Kugelman Law Difference: We explicitly ask that you do not edit these logs or try to format them into tax reports. The goal is to establish a pristine chain of custody.

We want to build your financial history using the exact same raw data an IRS auditor or a judge would see if your records were subpoenaed.

Phase 2: The “Proof is in the Pictures” Inventory

Once we have your transaction logs, we need a snapshot of reality. We ask our clients to take a precise inventory of their current holdings. However, we don’t want a dollar-value equivalent (e.g., “I have $50,000 worth of crypto”). We need the exact token count.

If you hold 4 BTC, 659 DASH, 40 ETH, and 24 ZEC, that is exactly what we need to see.

The Kugelman Law Difference: We advise our clients to take actual screenshots of these wallet balances rather than typing them out into a spreadsheet.

Why? Because in the realm of crypto audit defense, judges and IRS examiners view timestamps and screenshots as highly credible, contemporaneous evidence. It is a vital layer of protection that automated software completely ignores.

Phase 3: Forensic Chronological Reconciliation (Hard Step 1)

Once we have gathered your raw data, our CPA team consolidates the logs into a uniform, chronologically sorted master ledger. Then, the real forensic work begins.

We meticulously match every deposit with a corresponding withdrawal. For example, if your logs show a deposit of 10 ETH into Coinbase on January 2nd, we must find a corresponding withdrawal of 10 ETH from another wallet or exchange on that exact same date.

When deposits and withdrawals are unmatched – meaning funds appeared from nowhere or vanished into the ether – it is an immediate red flag that data is missing. Off-the-shelf software often treats these missing links as taxable events, costing you money. We treat them as puzzle pieces that need to be found to protect your wealth.

Phase 4: The Reality Check (Hard Step 2)

Next, we perform a vital “reality check.” We calculate exactly how many of each token your master ledger says you should have, and we compare that number against the real-life inventory screenshots you provided in Phase 2.

Where there are discrepancies, we dive back into the unmatched transactions for clues. For instance, if our calculated ledger says you own 34 ETH, but your real-life wallets only hold 27 ETH, we forensically trace the missing 7 ETH.

Did you move them to a forgotten cold storage wallet? Was a withdrawal actually a taxable trade for a different altcoin? We track down the truth.

Phase 5: Collaborative Refinement

You cannot fully automate a client’s financial history. Our process involves continuous, collaborative communication. We will follow up with you directly to ask specific questions about ambiguous transactions, request missing wallet data, and clarify the nature of specific transfers.

We continue this iterative review process until every transaction is accounted for and we have nothing left to process. Only then do we tie the final balances together by inference, resulting in a tax return that is accurate, optimized, and defensible.

Why Choose Kugelman Law?

Anyone can upload a CSV file into a software program and hope for the best. But when the IRS comes knocking, a software algorithm won’t stand beside you to defend your cost basis.

Our crypto tax accountant team combines deep technical knowledge of blockchain mechanics with rigorous legal tax defense strategies. We do the hard, manual work that software can’t, ensuring you don’t overpay your taxes and are fully prepared for any IRS inquiry.

If you are tired of the limitations of consumer-grade crypto tax software, it is time to upgrade to white-glove service. Contact Kugelman Law today to schedule a consultation regarding your cryptocurrency tax accounting needs.