The IRS Letter 6173, 6174 or 6174-A for Offshore Crypto (2025)

IRS Letter 6173, 6174 & 6174-A

IRS Letter 6173, 6174 & 6174-A

IRS Letter 6173, 6174 & 6174-A: In recent years, the IRS has been actively pursuing cryptocurrency tax compliance as a major enforcement initiative. As a result, the Internal Revenue Service began issuing letters to cryptocurrency investors. The type of letter a cryptocurrency owner will receive varies based on the information the IRS has on the U.S. individual for cryptocurrency ownership and reporting non-compliance. While the initial letters were first issued last year in 2019/2020, it looks like the IRS is up to its old tricks and more batches of crypto letters are being sent to tapxayers.

The three (3) main cryptocurrency letters to Taxpayers. include:

• • • • Letter 6173

      • Letter 6174

      • Letter 6174-A

IRS Letter 6173

Unlike IRS Letter 6174, the IRS Letter 6173 regarding virtual currency transactions requires an actual response. Therefore, there are time limits associated with the response that must be adhered to — to avoid more serious tax consequences later.

As provided by Letter 6173:

• • • • “We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.

      • Virtual currency is considered property for federal income tax purposes.

      • Generally, U.S. taxpayers must report all sales, exchanges, and other dispositions of virtual currency.

      • An exchange of a virtual currency (such as Bitcoin, Ether, etc.) includes the use of the virtual currency to pay for goods, services, or other property, including another virtual currency such as exchanging Bitcoin for Ether. This obligation applies regardless of whether the account is held in the U.S. or abroad.

      • More information can be found on www.irs.gov and in Notice 2014-21, found at www.irs.gov/pub/irs-drop/n-14-21.pdf, which describes how general tax principles for property transactions apply to transactions using virtual currency.

      • For one or more of tax years 2013 through 2017, we haven’t received either a federal income tax return or an applicable form or schedule reporting your virtual currency transactions.”

Why Letter 6173 is Dangerous

What makes the 6173 letter so dangerous is that the IRS purports that it already has information about non-compliance for tax and/or reporting and requires a timely response.

How to Respond to Letter 6173

As provided by the IRS:

• • • “If you failed to file one or more income tax returns, file the delinquent returns and report your virtual currency transactions as soon as possible. 

    • For more information see www.irs.gov/filing

      • If you made a mistake on your income tax return, such as not reporting your virtual currency transactions or incorrectly calculating your income, gain, or loss; you can file an amended return. For more information, visit www.irs.gov/forms-pubs/about-form-1040x.

      • If you believe you followed all tax and information reporting requirements relating to your virtual currency accounts, mail or eFax the following to the address or eFax number shown at the top of this letter.

        • A statement of facts explaining your position. Include a complete history of previously reported income from your virtual currency transactions. Explain the actions you took to become compliant with U.S. reporting requirements and provide copies of previously filed documents that confirm your compliance.

        • Your contact information, including your telephone number, complete address, and the address where you receive mail (if different). Letter 6173 (6-2019) Catalog Number 72154R

    • The following statements with your signature and date:

      • • I, declare under penalties of perjury that I have examined this entire document, including all attachments and accompanying statements, and that the enclosed is true, correct, and complete. I also understand with respect to any submission that the IRS reserves the right to make further contacts with me and my representatives to clarify any written explanation or any other documents. Statements and documents sent under this option will be checked against information received from banks, financial advisors, and other sources for accuracy.

IRS Letter 6174

When it comes to Letter 6174, one of the most important sigh-of-relief moments for the taxpayers is that unlike Letter 6173, the Taxpayer does NOT have to respond to the letter directly. As provided in Letter 6174:

• • • “Why we’re writing to you

      • • We have information that you have or had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.

    • What you need to do

      • • After reviewing the information below, if you believe you didn’t accurately report your virtual currency transactions on a federal income tax return, you should file amended returns or delinquent returns if you didn’t file a return for one or more taxable years. If you do not accurately report your virtual currency transactions, you may be subject to future civil and criminal enforcement activity. For more information, visit www.irs.gov/filing.

        • When filing amended or delinquent returns, write “Letter 6174” at the top of the first page of the return.

        • Mail the original amended or delinquent return to: Internal Revenue Service 2970 Market Street Philadelphia, PA 19104 Reporting virtual currency transactions Virtual currency is considered property for federal income tax purposes.

        • Generally, U.S. taxpayers must report all sales, exchanges, and other dispositions of virtual currency.

        • An exchange of a virtual currency (such as Bitcoin, Ether, etc.) includes the use of the virtual currency to pay for goods, services, or other property, including another virtual currency such as exchanging Bitcoin for Ether.

        • This obligation applies regardless of whether the account is held in the U.S. or abroad.

Common schedules for reporting virtual currency transactions include the following:

Schedule C

• • • • • If you were an independent contractor and received payment in virtual currency, you must report it in gross income for the amount of the virtual currency’s fair market value, measured in U.S. dollars, as of the date and time you received the virtual currency.

        • Gross income derived by an individual from a trade or business, carried on by the individual as other than an employee, is reported on Schedule C.

        • This constitutes self-employment income and is subject to the self-employment tax. For more information, you can refer to the instructions for Schedule C.

Schedule D

• • • • • If you sold, exchanged, or disposed of virtual currency (e.g. Bitcoin, Ether), or used it to pay for goods or services, you have engaged in a reportable transaction and may have a tax liability. These transactions may be reportable on Schedule D.

        • On the tax return, report the virtual currency received at its fair market value, measured in U.S. dollars, as of the date and time of the transaction. You should maintain and review all transaction records, including bank, wallet, and exchange reports and statements to determine your basis, amount received, and other information needed for reporting on Schedule D. For more information, you can refer to the instructions for Schedule D.

Schedule E

• • • • • If you received supplemental income in the form of virtual currency, including income from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs, you may need to report this on Schedule E. On the tax return, report the virtual currency received at its fair market value, measured in U.S. dollars, as of the date and time of the transaction.

        • You may also need to file supplemental forms (e.g. Form 8582, Passive Activity Loss Limitations).

        • See the instructions for Schedule E for any other circumstances that may apply. For more information, you can refer to the instructions for Schedule E.”

Letter 6174-A

The 6174-A is similar to the 6174 and does not require any response. The difference is simply that 6174 ends with:

• • • You do not need to respond to this letter.

And 6174-A has a nice passive/aggressive tone to it:

• • • “You do not need to respond to this letter. Note, however, we may send other correspondence about potential enforcement activity in the future.”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.