IRS Sends Surge of Crypto Tax Letters to Investors

Crypto investors in the U.S. are experiencing a surge in letters from the Internal Revenue Service (IRS) regarding their digital asset investments. This influx of correspondence, which warns taxpayers about potential inaccuracies in their reported crypto investments, marks a significant increase over the past year, according to three crypto tax experts. The letters, sent over the past two months, advise investors to verify the accuracy of their crypto transaction reports to the IRS.

CoinLedger, a crypto tax platform, has seen a notable spike in users seeking information about these government communiqués. 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. David Kemmerer, cofounder and CEO of the tax website, noted that thousands of investors are receiving these letters, leading to a flood of inquiries from concerned customers.

Two crypto tax attorneys have also observed an uptick in inquiries about these letters. At least 10 recipients have reached out to Jordan Bass's firm over the past two months, compared to no inquiries in 2024. Andrew Gordon, another attorney specializing in crypto tax law, reported receiving at least a couple of calls per week regarding these letters. The experts noted that this level of IRS activity in crypto inquiries has not been seen since the tax agency sent out a flood of letters in 2020 and 2021.

The IRS letters inform crypto owners that the agency has information about their virtual currency accounts. Two versions of the letters advise investors to check the accuracy of their reported crypto transactions, while a third type requires recipients to respond with new or amended tax returns or an explanation of their reporting accuracy. The experts speculated that the increased IRS outreach may be due to the agency obtaining new data from crypto exchanges, although the exact reason for the surge remains unclear.

The IRS's renewed focus on crypto taxation comes as the use of digital currencies becomes more mainstream. With more individuals and institutions investing in cryptocurrencies, it is crucial for tax authorities to ensure compliance with tax regulations. The IRS's efforts aim to close the gap between reported and actual crypto-related income, holding all taxpayers accountable for their financial activities.

Tax experts advise crypto investors to be proactive in their tax reporting. This includes maintaining detailed records of all crypto transactions, understanding the tax implications of different types of crypto activities, and seeking professional advice if necessary. By being transparent and compliant, investors can avoid potential legal issues and ensure that they are meeting their tax obligations.

The IRS's actions serve as a reminder of the importance of staying informed about tax laws and regulations. As the use of cryptocurrencies continues to grow, investors must stay updated on the latest developments and ensure compliance with all relevant tax requirements. By doing so, they can protect their financial interests and avoid potential legal complications.