The crypto tax software, CoinLedger, has reported a staggering 758% rise in U.S. users receiving warning letters from the Internal Revenue Service (IRS) over the past 60 days. This trend was also confirmed by accounting firms such as Taxing Cryptocurrency, according to David Kemmerer, CoinLedger’s CEO.
Despite President Donald Trump’s professed interest in abolishing taxes on cryptocurrencies based in the U.S., no such legislation has been introduced in Congress, Kemmerer relayed via email. Moreover, a common misconception among investors is that they are not required to declare crypto on their taxes. IRS warning letters are causing widespread anxiety, suggesting the onset of a more extensive enforcement wave. This is likely to intensify with the advent of new 1099-DA regulations, which are due to take effect next year, Kemmerer warned.
“The current climate is one of uncertainty and fear among average crypto investors, many of whom have made earnest attempts to report their taxes accurately,” Kemmerer noted. “With 1099-DA looming, enforcement is set to intensify. The IRS now has greater insight into crypto than ever before, but without precise cost basis data, even compliant investors may be wrongfully flagged. Hence, it’s crucial to maintain detailed records and be proactive in tracking taxable income.”
Starting January 1, 2026, crypto brokers are required to report both the gross proceeds and cost basis of digital asset sales on Form 1099-DA. This means the IRS will automatically receive detailed gain/loss data for users, thereby reducing underreporting and significantly enhancing compliance oversight for crypto holders. However, this April, Trump repealed a controversial IRS crypto rule finalized under Joe Biden that would have also included DeFi platforms as brokers.
The IRS has been dispatching various types of crypto-related warning letters, each with varying degrees of severity. The most prevalent is Letter 6174, which serves as a low-severity educational reminder that crypto transactions may be taxable and should be reported. This does not imply any wrongdoing and is often sent to crypto investors identified by IRS through John Doe summonses issued to exchanges such as Coinbase.
Letter 6174-A indicates suspected underreporting by the IRS, but does not necessitate a response. However, it is advisable for taxpayers to review their return carefully and file an amendment if needed. More serious notices like Letter 6173 and CP2000 are increasingly common, demanding timely responses and potentially triggering audits if ignored.
“Many users are taken aback by the IRS warning letters. These aren’t tax evaders, but ordinary investors who had Bitcoin or Ethereum for years and thought they were compliant,” remarked Ben Yoder, CoinLedger’s Customer Success Manager. “A recurring theme is their concern about honest mistakes made years ago. For instance, one customer was worried about a potential audit because they didn’t report a few hundred dollars of crypto income in 2021.”
Even if taxpayers reported their taxes accurately, they could still receive these letters, often due to challenges in tracking cost basis across wallet-to-wallet transfers. If an individual receives an IRS letter but believes their crypto taxes were filed correctly, they can respond with supporting documents like trade history or Form 1099s from exchanges.
If they failed to report crypto in a prior year, they can amend their return using Form 1040X and include a memo if significant changes are made. While less severe notices like 6174 or 6174-A can be resolved by the recipient manually or by using crypto tax software, more serious letters like CP2000 or 6173 might warrant assistance from a tax professional.
In February, CoinLedger revealed that the average crypto investor’s portfolio saw gains of $5,482 in 2024, with HYPE and BTC contributing the largest unrealized gains, while ETH, ADA, and POL led the losses.
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