IRS Cryptocurrency Warning Letters Surge 758%

The Internal Revenue Service (IRS) has dramatically increased the number of warning letters sent to U.S. cryptocurrency investors, with a reported surge of 758% over the past 60 days. This significant spike has been confirmed by multiple sources, including accounting firms specializing in cryptocurrency taxation. The letters are primarily targeting everyday investors who are often surprised by the notices, despite their belief that they have filed their taxes correctly. The confusion typically arises from issues such as wallet-to-wallet transfers and missing cost basis data, which can trigger IRS alerts even in the absence of tax evasion.

The most frequently sent letter is IRS Notice 6174, which is educational in nature. However, more serious letters, such as Notice 6173 and CP2000, may require responses and can potentially lead to audits. The surge in these letters is seen as a potential precursor to a broader enforcement wave, especially in light of the upcoming Form 1099-DA rules. These new regulations, set to take effect in 2026, will mandate that crypto brokers report detailed gain/loss data to the IRS.

Despite Donald Trump's public support for eliminating taxes on cryptocurrency, no such legislation has been enacted. Any tax reform in this area would necessitate approval from both the House of Representatives and the Senate. In April, Trump repealed an IRS rule that would have expanded the definition of a broker to include decentralized finance (DeFi) platforms, a move that has implications for the regulatory landscape of cryptocurrency.

As tax scrutiny intensifies, it is crucial for cryptocurrency investors to maintain accurate records and proactively track taxable events. Seeking professional help is also advised for those who receive serious IRS notices. This proactive approach can help investors navigate the complexities of cryptocurrency taxation and avoid potential legal issues.