IRS Crypto Letter 6173 or 6174?

Cryptocurrency isn’t flying under the tax radar anymore. The IRS now treats digital assets like property, which means any sale, swap, or payment could be a taxable event. If you have Bitcoin in your company’s portfolio, accepting crypto as payment, or investing in altcoins for your business, it all counts.

Starting in 2023, even business tax returns will have a “digital asset” checkbox. Checking “Yes” lets the IRS know you’re in the game. It’s not a bad thing, but it means they’re paying attention.

As such, there are some important things you should be aware of.

Crypto Tax Triggers for Businesses

Common taxable events include the sale of cryptocurrency for cash, token swaps, the use of cryptocurrency for purchasing goods or services, mining or staking rewards, and the receipt of cryptocurrency payments for work.

Each of these must be meticulously reported, accompanied by precise records of the fair market value at the time of the transaction.

And if you think “they’ll never know,” think again, the IRS has court orders compelling major exchanges to hand over customer data, and they’ve invested in blockchain tracking technology.

Letters 6173, 6174, and 6174-A

Even the “soft” letters are an opportunity to address a problem. Ignoring them is like ignoring a smoke alarm; it is an important safety device in any home. It helps protect you and your loved ones by alerting you to potential fires early, giving everyone a chance to stay safe. Remember to check and maintain it regularly so it’s always ready to keep you protected.

 If the IRS thinks you’ve underreported crypto income, you might get one of these letters:

• 6174 — A nudge to review your returns and fix any errors.
• 6174-A — A stronger warning that they suspect an issue.
• 6173 — A demand for action, with a deadline to respond or face an audit.

Don’t Panic If You Get A Letter

Did you just get one of those dreaded letters? Start by reading the document to determine if it’s informational or requires a response. Then, review your cryptocurrency records, including exchange statements, wallet transactions, mining logs, and tax forms. Then compare them with your filed tax returns.

If you observe any discrepancies, this is the ideal opportunity to address them.

This may involve submitting amended returns or, in certain instances, participating in a voluntary disclosure program to minimize penalties.

The International Twist

Crypto complicates things further when foreign accounts are involved. If your business holds assets on an overseas exchange or wallet, you may have FBAR or FATCA filing requirements. The penalties for missing these can be steep, even higher than the taxes owed.

Many taxpayers amend their returns to correct crypto reporting errors without addressing foreign account disclosures, a mistake that can leave them vulnerable to another IRS enforcement action later.

Why a Crypto-Savvy Tax Attorney Is Needed

Crypto tax rules are still evolving, and the penalties for getting it wrong can be severe. They don’t just fix problems; they also help you set up systems to stay compliant going forward.

A tax attorney who understands digital assets can:

• Interpret the latest IRS guidance and how it applies to your business.
• Create a thoughtful and secure strategy for responding to IRS letters, addressing both tax and international reporting considerations.
• Protect your communications with attorney-client privilege.
• Stand by you to represent you in audits, appeals, or court if the situation escalates.

Best Practices for Businesses Using Cryptocurrency

While compliance is important, forward-thinking businesses see cryptocurrency as a strategic asset. Establish a digital asset policy that outlines how cryptocurrency is acquired, stored, and utilized. Use multi-signature wallets or institutional custodial solutions to reduce theft and fraud risks. Implement clear approval processes for each transaction.

On the accounting side, choose reliable crypto bookkeeping tools that sync with your wallets and exchanges, so your records are accurate in real time.

Finally, keep an eye on both domestic and international regulatory changes, as crypto laws can shift quickly and without much notice.

Ready To Talk To a Legal Expert?

IRS cryptocurrency enforcement initiatives are persistent and expanding. However, with accurate record-keeping, proactive measures, and experienced representation, you can address any IRS inquiry with confidence.

If your business has received an IRS letter about cryptocurrency, or if you’re unsure your reporting is airtight, don’t wait. Schedule a consultation with Todd S. Unger, Esq. LLC and get clear, confident guidance to protect your business.