IRS Issues 758% More Crypto Tax Warning Letters

The Internal Revenue Service (IRS) has significantly intensified its scrutiny of cryptocurrency investors, issuing 758% more warning letters over the past 60 days. This dramatic increase in enforcement notifications has left many investors confused, as some have received these letters despite believing they have accurately reported their taxes. The letters, sent over the past two months, advise investors to verify the accuracy of their crypto transaction reports to the IRS. The most common IRS warning letter, Notice 6174, serves an educational purpose, informing taxpayers about their reporting obligations. However, more serious notices—such as Letter 6173 or CP2000—may require immediate action and could potentially escalate to audits.

The sharp increase in warning letters might be an early indicator of broader enforcement efforts by the IRS. Starting in 2026, a new tax reporting regulation involving Form 1099-DA will go into effect, requiring crypto brokers to report detailed capital gains and losses. This is expected to enhance compliance measures and make tax evasion in the crypto space harder to conceal. The IRS has been increasingly focused on ensuring that cryptocurrency transactions are accurately reported and taxed. The surge in warning letters is a clear signal that the agency is stepping up its efforts to enforce tax compliance in the digital asset space.

Factors such as wallet-to-wallet transfers and missing cost basis data often trigger these letters, which can result in a warning from the IRS irrespective of any tax evasion intent. Many cryptocurrency investors are receiving these letters even though they believe they have accurately reported their taxes. These factors can lead to warnings from the IRS, even if there was no intent to evade taxes.

Amid this environment of elevated tax scrutiny, it is advisable for cryptocurrency investors to adopt best practices such as maintaining accurate and thorough records of all transactions, identifying taxable events in advance to avoid surprises, and seeking professional assistance if receiving serious IRS correspondence like Letters 6173 or CP2000. By following these recommendations, taxpayers can mitigate potential issues, avoid penalties, and respond effectively to any warnings or audits from the IRS.

David Kemmerer, Cofounder and CEO of CoinLedger, revealed that the number of support conversations on CoinLedger that mentioned ‘IRS letters’ from May through June numbered close to 800, a ninefold increase compared to the same period in 2024. This surge in IRS letters alerts investors to ensure crypto tax accuracy, indicating a stricter compliance stance affecting market behaviors. The IRS has markedly increased its scrutiny of cryptocurrency activities, advising investors to review their reported transactions. For more information, IRS Notice 6174-A provides guidance on tax compliance requirements. This action indicates a shift towards more stringent compliance measures, enforcing its authority in the digital asset space.

The hefty rise in IRS warnings has prompted legal and tax professionals to gear up for an increased demand in advisory services. Investors are now seeking legal counsel in greater numbers to address these IRS concerns. Familiarizing oneself with Understanding CP2000 Notices: IRS verification of income discrepancies could be valuable for those navigating these newfound challenges. Historically, heightened IRS attention like this results in conservative market activity as investors reassess their tax strategies. Previous actions in 2020 and 2021 had similar repercussions, resulting in temporary market slowdowns while investors adjusted their compliance processes.

Potential outcomes from this IRS action remain unpredictable, though it could lead to better tax compliance or stimulate more anonymous transactions in less transparent markets. Developers and exchanges might increase their focus on compliance tools and guidance documentation for users. The IRS has been increasingly focused on ensuring that cryptocurrency transactions are accurately reported and taxed. The surge in warning letters is a clear signal that the agency is stepping up its efforts to enforce tax compliance in the digital asset space.