IRS Letter 6174: What It Means and How to Respond
IRS Letter 6174: What It Means and How to Respond
Letter 6174 is an IRS educational notice, not a bill or an audit. It says the IRS has information suggesting you may have under-reported virtual currency (crypto) activity, and it asks you to review your returns. It sets no payment demand and no response deadline. You should still check the years it covers and amend if you find an error.
Quick answer
What it is: a “compliance nudge” mailed to crypto holders the IRS believes may have unreported activity. Does it require a reply? No formal reply or deadline. Silence is still not a strategy. What to do: confirm it’s genuine, rebuild your crypto history for the years in question, compare it to what you filed, and file Form 1040-X if the numbers differ. When to get help: large gains, many wallets or exchanges, or any chance a past omission was deliberate. What is IRS Letter 6174, exactly?
Letter 6174 is part of the IRS’s virtual currency compliance effort. In 2019 the agency began mailing letters to taxpayers whose names appeared in exchange data it had obtained. The campaign included Letters 6173, 6174, and 6174-A, with thousands of recipients in the first wave and later mailings in following years .
The three letters differ in how much they ask of you:
Letter Tone Response required? 6173 Most serious. Asks you to respond and send supporting information Yes, with a stated deadline 6174 Educational. Reminds you of your reporting obligation No formal response 6174-A Educational, similar to 6174, worded for a slightly different taxpayer profile No formal response
Look for the notice number in the upper right corner of the first page. If yours says 6173, stop reading this page and treat the deadline as real.
Is Letter 6174 an audit?
No. It doesn’t propose a change to your return, assess tax, or open an examination. It tells you the IRS has noticed something and expects you to self-correct.
It is not harmless, though. The IRS has your exchange data, so a mismatch can later turn into a CP2000 notice or a correspondence audit. Treat the letter as a free opportunity to fix things on your own terms.
Before anything else: is the letter real?
Scammers imitate IRS crypto letters because the topic makes people anxious.
The IRS opens these contacts by postal mail, not by email, text, or social media. A genuine letter will never demand payment in crypto, gift cards, or wire transfers. If you’re unsure, call the number on the IRS’s official site (irs.gov), not the one in the letter, and give them the notice number. Step-by-step: how to respond to Letter 6174 1. Identify which years it refers to
The letter may not list specific transactions. Note the tax years it names or implies. If it names none, assume every year you held or traded crypto on a platform that reports to the IRS.
- 2. Rebuild your crypto history for those years
Pull complete records from every exchange, wallet, and DeFi protocol you used:
Full transaction-history CSVs (not just annual summaries). Self-custody wallet addresses, so on-chain transfers between your own wallets aren’t miscounted as sales. Records of staking rewards, airdrops, mining income, and crypto-to-crypto swaps. Each of these can be a taxable event.
cost basis is where most mistakes hide. Missing transfer records make it look as if you sold coins with zero basis, which overstates your gain.
- 3. Compare against what you actually filed
Pull your filed returns for each year and check three things:
The digital-asset question. Since 2021 it has appeared on page 1 of Form 1040. In earlier years it sat on Schedule 1. If you answered “No” and had activity, that’s a flag. Form 8949 and Schedule D. Do your reported disposals reconcile with your reconstructed history? Ordinary income. Were staking, mining, or airdrop receipts reported as income? 4. Decide which branch you’re on Everything matches. Keep your reconciliation file. No reply to the IRS is required. If you want extra comfort, a short note to a tax professional documenting your conclusion is cheap insurance. Small errors or omissions. Amend the affected years (step 5). Large omissions, many years, offshore platforms, or any chance the omission was knowing. Talk to a tax attorney or CPA before you file anything (see below). 5. File an amended return if needed
Use Form 1040-X for each affected year, with corrected Form 8949 and Schedule D (and Schedule 1 or Schedule C for income-type activity). Pay the additional tax. Interest runs from the original due date regardless of when you amend.
The accuracy-related penalty is 20% of the underpayment attributable to negligence or substantial understatement (IRC §6662). A qualified amended return can avoid that penalty, but only if it’s filed before the IRS first contacts you about an examination (Treas. Reg. §1.6664-2(c)). Whether an educational letter like 6174 counts as that contact is something to confirm with a professional before relying on it .
- 6. Keep a paper trail
Save the letter, your reconciliation workpapers, the exchange exports, and proof of mailing or e-filing. Hold them at least as long as the relevant assessment period.
How far back can the IRS go? Situation Typical assessment window Ordinary return, filed 3 years from filing Omission of more than 25% of gross income 6 years No return filed, or fraud No limit
Crypto gains are measured against gross income in ways that can surprise people, so confirm which window applies to you rather than assuming three years.
When should you hire a professional?
Get help if any of these apply:
Total unreported gains or income are large relative to your overall income. You used many exchanges, bridges, or DeFi protocols and can’t fully reconstruct basis. There’s any possibility a past omission was deliberate. That moves you toward the IRS’s voluntary disclosure practice, and you want attorney-client privilege first. You never filed returns for crypto years.
An attorney can structure the engagement so your accountant works under privilege. A CPA alone generally can’t promise that protection .
Common mistakes Ignoring it because “no response is required.” The nudge is the cheap path. The CP2000 and the audit are the expensive ones. Amending only the numbers the exchange reports. Exchange data is often incomplete (self-custody transfers, other platforms). Reconcile your whole history. Guessing cost basis. Document your method and apply it consistently. Answering the digital-asset question inconsistently across years. What’s changing: Form 1099-DA
Brokers began issuing Form 1099-DA for 2025 transactions (gross proceeds from 2025, with cost basis reporting phasing in from 2026). The IRS will have far cleaner data going forward, so the gap between what you report and what it sees will shrink. If a Letter 6174 arrives now, fix the past before the better data makes mismatches easier to find.
Bottom line
Letter 6174 is a polite warning backed by real data. Verify it, reconstruct your history, reconcile it against your returns, and amend if the numbers differ. Most recipients with modest activity can resolve it quietly and cleanly.
One thing worth asking yourself: if you went through your own records today, would the last five years of crypto activity match what you filed?
crypto tax’s notice guide covers the related letters, including what to do if yours turns out to be a 6173 or a CP2000 .