IRS Sends Another Round of Warning Letters to U.S. Cryptocurrency Investors

The Internal Revenue Service (IRS) has distributed another round of warning letters to U.S. taxpayers with Bitcoin and other cryptocurrency holdings. This follows a similar initiative last year. The letters, dated August 14, 2020, are identified as Letter 6173, Letter 6174 and Letter 6174-A. If you have received one of these letters from the IRS, it is important that you speak with a Virginia tax defense attorney promptly.

Why is the IRS Sending Warning Letters to Cryptocurrency Investors?

The IRS began its practice of sending large batches of warning letters to cryptocurrency investors in 2019. The IRS has identified cryptocurrency has a high-risk area for tax evasion and tax fraud, and combatting cryptocurrency-related fraud is currently on the IRS’s short list of top agencywide priorities.

The reasons for this are twofold. First, many cryptocurrency investors (and other individuals and businesses that simply use Bitcoin and other cryptocurrencies for transactional purposes) are unaware of the federal tax obligations attendant to buying, selling and transferring cryptocurrency. The IRS has made clear that cryptocurrency sales and exchanges are taxable events, and it has made equally clear that it intends to aggressively enforce U.S. taxpayers’ obligations in the cryptocurrency arena.

Second, the federal tax laws and regulations that apply to cryptocurrencies are extraordinarily complicated, and many taxpayers who attempt to comply fail to do so. Without a detailed record of their transaction history, cryptocurrency holders will struggle to meet their obligations to the IRS.

What are the Risks of Receiving a Cryptocurrency Warning Letter from the IRS?

If you have received one of the IRS’s cryptocurrency warning letters, this means that you are on the agency’s radar. If the IRS chooses to audit your income tax returns, or if agents determine that they have reason to pursue an investigation, the consequences could be substantial. Failing to fully report and pay what you owe the IRS with respect to your cryptocurrency holdings or transactions can lead to:

• Liability for unpaid taxes
• Interest and fines
• Possible criminal prosecution and imprisonment

What Should I Do if I Received Letter 6173, Letter 6174 or Letter 6174-A?

Upon receiving Letter 6173, Letter 6174 or Letter 6174-A, the first thing you should do is review the letter in detail. While only Letter 6173 requires a direct response, if you have underreported or underpaid, you will need to submit an amended filing to the IRS. Make sure you know which letter you received, and make sure you know what you need to do and what deadline applies.

In order to ensure that you comply with the law and avoid mistakes that could increase your risk of facing an audit or investigation, you should also consult with an attorney. The Virginia tax defense attorneys at Thorn Law Group have extensive experience in cryptocurrency-related matters, and we can help protect you.

Request a Free Consultation at Thorn Law Group

Have you received Letter 6173, Letter 6174 or Letter 6174-A from the IRS? To discuss your next steps with Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, call 703-752-3752, email ket@thornlawgroup.com or contact Thorn Law Group online today.