Understanding IRS tax letters: What to know

Receiving an IRS notice can feel confusing – and even a little scary. Tax season is stressful enough, and a notice implying something’s wrong can rattle even the most diligent taxpayer.

The first reaction is often, “Why is the IRS sending me a letter? Am I being audited?” This uncertainty can cause panic, especially when the notice relates to cryptocurrency – a space with evolving rules and limited legal support.

If you've received an IRS notice about your crypto taxes – such as IRS Letter 6173 (sent to taxpayers the IRS believes may not have reported digital asset transactions) or IRS Notice CP2000 (a proposed adjustment based on mismatched information) – you're not alone. The tax treatment of digital assets is still relatively new, and many taxpayers are unsure about how to respond.

Understanding IRS tax letters can feel overwhelming, but it doesn’t have to be. In this guide, we’ll explain common crypto-related IRS notices and provide tips on how to respond confidently and correctly.

7 things to know about an IRS notice

Tax letters can catch you off guard, but there’s no need to panic. Here are seven things to keep in mind if you receive an IRS notice.

1. Stay calm

IRS audits might be the boogeyman of tax season, but not all IRS letters are IRS audits. In most cases, you can resolve the issue quickly with a simple response to the notice.

2. The IRS sends letters for various reasons

IRS tax letters like the CP2000 cover various topics related to your account or federal tax return, many of which have simple solutions. Common reasons for IRS notices include:

• You need to verify your identity (e.g., IRS tax identification letters).
• There are taxes owed.
• There was a change to your tax return.
• The IRS has a question about your tax return.
• There’s been a delay in processing your tax return.
• The IRS needs additional information regarding your tax return.

IRS letters often include lengthy explanations and unfamiliar legal jargon. That’s because the IRS is legally required to inform you of your rights and other key details. If you’re unsure how to interpret the notice, contact a tax professional or call the IRS directly.

3. It could be regarding a change or correction

Anytime the IRS makes a change or correction to your tax return, it must send a notice. If you receive one of these letters, review the updated information and compare it to your original return to confirm accuracy.

4. Follow the specific instructions provided

As soon as you receive a letter, review the information provided. Every IRS notice includes specific instructions on how to respond. Read them carefully and act quickly – most notices include deadlines. Ignoring a letter may lead to follow-up notices, additional penalties, or delayed resolution.

5. Visiting the IRS office is usually unnecessary

Most notices are for minor matters that don’t require you to call the IRS or visit an IRS office. Carefully review your letter to see what actions to take. If you have questions, contact the IRS using the phone number on the notice. Have your tax return and the notice handy so you can provide the necessary information and answer any questions the IRS agent may ask.

6. You can agree or disagree with the notice

The IRS processes millions of tax returns every year, and mistakes can happen – on both sides. Whether you agree or disagree with the IRS, respond promptly to avoid added penalties or interest.

• If you agree with the notice: Follow the instructions provided – usually, there's no need to contact the IRS.
• If you disagree with the notice: Respond in writing with a clear explanation of your objections. Include any documents that support your claim in your letter, and mail your response to the address listed in the notice.

7. Keep a copy of the letter

Always save a copy of the IRS letter with your tax records. Digital versions can get lost or deleted. Keep both a digital and physical copy so you can reference it later if needed.

Don’t stress, CoinTracker has your back

CoinTracker can help resolve many IRS crypto tax issues in just a few simple steps. Whether you’re responding to a CP2000 or Letter 6173, here’s how to get started:

Step 1: Create a CoinTracker account

Start by creating a free CoinTracker account. It only takes a few minutes and gives you access to our Portfolio Tracker and other tax tools.

Step 2: Add your crypto exchanges and wallets

Connect all your cryptocurrency exchanges, off-exchange wallets (like MetaMask, Ledger, or Trezor) and any blockchain addresses you’ve used. The more complete your transaction history, the more accurate your tax reports will be.

Step 3: Purchase a tax plan

To access CoinTracker’s full suite of tax reporting features, purchase a tax plan for each year you had taxable crypto activity – like capital gains, staking income, or airdrops. You’ll find this on the Tax page in your account, where you can also see which years have reportable events.

Step 4: Download your tax reports

Once all your exchanges and wallets are connected, CoinTracker will automatically generate IRS-compliant reports, including Form 8949 and a summary of gains and losses. You can download them anytime from the Tax page.

Step 5: Amend your tax return

Use your updated tax reports to amend your federal and/or state tax returns if needed. You can file Form 1040-X electronically through tax software like TurboTax, or submit a paper version by mail. Not sure how to amend it? A crypto-savvy tax pro can guide you through it.

Step 6: Respond to the IRS

Send your response by the deadline listed in your letter. Attach any amended returns, tax forms, or documentation that support your case. For more complex notices – or if you’re unsure what to include – we strongly recommend working with a tax professional familiar with crypto.

FAQs

How do cryptocurrency taxes work?

The short answer? There isn’t one. But we’ve got you covered – CoinTracker’s cryptocurrency tax guide breaks down the basics, from capital gains to staking income.

How can I file my cryptocurrency taxes?

CoinTracker makes filing easy by integrating with platforms like TurboTax, TaxAct, and H&R Block – and we work seamlessly with CPAs. If you need support, we can also connect you with a crypto-savvy accountant. Or, if you prefer, you can use our downloadable IRS-compliant forms to file manually.

I still have questions about cryptocurrency and Bitcoin taxes

For more information, visit our help center or contact CoinTracker directly – we’d love to chat with you!

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.