IRS Cryptocurrency Warning Letters Surge 758% in Two Months

American cryptocurrency investors are currently experiencing a surge in IRS warning letters, with the volume of notices increasing by 758% in the past two months. This significant rise was confirmed by CoinLedger, a tax software company, and its CEO, David Kemmerer. Tax experts have also reported this spike, indicating a growing trend of scrutiny from the IRS.

Many of the targeted investors hold their cryptocurrency in a passive position and believe they have already paid the necessary taxes. However, common errors such as wallet-to-wallet transfers or failing to provide cost basis information can trigger IRS suspicions, even in the absence of tax evasion. These mistakes often leave everyday investors in the dark about their tax obligations, making them vulnerable to IRS inquiries.

The most frequently sent notice is IRS Notice 6174, which is primarily informational. However, stricter notices such as 6173 and CP2000 demand immediate action and can lead to audits or penalties. CoinLedger advises recipients of these notices not to ignore them and to seek professional advice to navigate the complexities of the IRS's demands.

Kemmerer believes that the increase in letters could be an indicator of a larger enforcement wave by the IRS before 2026. This is the year when the new Form 1099-DA guidelines will become applicable, requiring crypto brokers to report gain/loss information with higher accuracy. This regulatory change is expected to enhance the IRS's ability to track and enforce tax compliance in the cryptocurrency space.

Despite public support from Donald Trump for reversing crypto taxes, no legislation has been passed to alter the current tax framework. Crypto analyst Adam Cochran recently dismissed rumors that an executive order could exempt tax expenses, emphasizing that congressional approval would be necessary for any such changes. Trump did, however, delay an IRS rule earlier this year that would have categorized DeFi platforms as brokers, highlighting the ongoing political and regulatory debates surrounding cryptocurrency taxation.

In light of the intensifying regulatory scrutiny, CoinLedger is urging crypto consumers to maintain accurate records of their transactions, monitor all taxable events, and seek professional help when they find themselves in the IRS's spotlight. The message is clear: crypto tax compliance is no longer a suggestion—it is a necessity for investors to avoid potential penalties and audits.