Spike in IRS Letters Tied to Crypto Gains — and New 1099-DA Rules Looming
A sharp surge in IRS warning letters to crypto investors has created confusion and anxiety across the U.S. crypto community. According to recent industry data, the number of IRS letters sent to digital asset holders has risen by 758% over the last two months — signaling a possible broad enforcement wave ahead of new 1099-DA reporting rules.
What’s Triggering the Spike in IRS Crypto Letters?
The increase in letters is tied to the IRS gaining greater visibility into crypto transactions through:
- Exchange reporting (via John Doe summonses)
- Blockchain data analytics
- Improved compliance software integrations
Many investors, despite best efforts, are being flagged due to incomplete cost basis tracking or wallet-to-wallet transfer confusion, even if no tax was due.
“Even compliant investors can get mistakenly flagged if cost basis records are missing,” said one industry expert.
Understanding the Different IRS Crypto Letters
The IRS has sent out several types of letters with varying levels of severity:
- Letter 6174: An educational notice, advising investors that crypto may be taxable. No action is required.
- Letter 6174-A: Indicates suspected underreporting. No response is required, but it’s wise to review and possibly amend past returns.
- Letter 6173: A more serious letter requiring a response by a specific deadline, or risk triggering an audit.
- CP2000: The most severe notice, outlining a proposed tax liability. Must be addressed within 30 days to avoid penalties.
New Regulation: 1099-DA Begins January 2026
Starting in January 2026, all crypto brokers must issue Form 1099-DA, reporting both gross proceeds and cost basis for digital asset sales. This will give the IRS automated insight into user gains and losses, reducing underreporting and increasing audit risk for those who fail to file accurately.
How to Respond If You Receive a Letter
If you receive a crypto-related IRS notice:
- Don’t panic, but review your filings carefully.
- Gather records, including Form 1099s and trade history.
- If needed, file an amendment using Form 1040X.
- For CP2000 or Letter 6173, consider hiring a tax professional.
Bottom Line: Be Proactive, Not Fearful
These letters aren’t just targeting tax evaders. Many recipients are everyday investors who misunderstood their reporting obligations. With stricter enforcement coming, it’s critical to use crypto tax software, maintain records, and seek help early.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.