IRS Letters 6173, 6174, and 6174-A for Cryptocurrency

Can an Amended Return in Response Expose You to Criminal Tax Liability?

Over the past few years, the IRS has significantly intensified its scrutiny of cryptocurrency transactions. Part of this expansion involves sending out Letters 6173, 6174, and 6174-A to taxpayers the IRS suspects might have unreported digital asset income or capital gains. In 2020 alone, the IRS reportedly sent over 10,000 such warning letters—an indicator of just how seriously the government takes crypto-related tax compliance. These letters frequently arise from John Doe Summonses served on major cryptocurrency exchanges, compelling them to reveal user account data for individuals whose trades surpass certain thresholds (sometimes as low as $20,000 over multiple years).

If you’ve received one of these letters, you may be wondering how to address past crypto tax noncompliance, whether to file an amended return, and whether such an amendment could be construed as a criminal admission of tax fraud. At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorneys & CPAs will help you understand how IRS Letters 6173, 6174, and 6174-A function, clarify when an amended return may trigger criminal tax implications, and guide you in minimizing potential risks—while keeping you in full compliance with the IRS. If you have received one of these letters regarding your cryptocurrency accounts, try not to panic: a letter from the IRS does not automatically translate into a criminal crypto tax evasion investigation. However, it does signal that the IRS is monitoring your financial activities, which could be problematic if you have underreported or improperly reported your virtual currency transactions in the past, especially over multiple tax years.

If you have any questions about reporting and paying taxes on Bitcoin or other cryptocurrencies—no matter how small the transactions appear—contact our dual-licensed Tax Attorneys & CPAs for an in-depth consultation to determine the best course of action. Schedule your reduced-rate Crypto tax consultation by calling (888) 564-1409 or reaching out online HERE, and feel free to explore our Bitcoin archives for additional information.

Understanding Letters 6173, 6174, and 6174-A

The IRS has three distinct types of letters it sends to taxpayers suspected of underreporting cryptocurrency transactions: Letter 6173, Letter 6174, and Letter 6174-A. Each letter indicates that the IRS has information—often derived from John Doe Summonses served on major crypto exchanges—suggesting a discrepancy or omission in your digital currency reporting. Though the specifics vary, all three letters are designed to address potential unreported income or capital gains stemming from your virtual currency activities.

Letter 6173

• Frequently regarded as the most serious of the three.
• Letter 6173 explicitly states the IRS believes you failed to meet your tax filing and reporting obligations for cryptocurrency transactions.
• You must act before the “respond date” by either:
  • Filing any delinquent tax returns if you have not already done so.
  • Amending past returns if you made errors or omissions, such as neglecting to report certain trades or miscalculating your gains and losses.
  • Demonstrating compliance if you believe you have fulfilled all reporting requirements. This typically involves sending a statement of facts, prior-year documentation confirming compliance, your contact details, and a signed certification under penalties of perjury (via the address and eFax number on the letter).
• Ignoring or failing to address Letter 6173 can result in the IRS referring you for examination / investigation, which may include a high-risk eggshell tax audit or, in more severe cases, a referral to the clandestine IRS-Criminal Investigation Division for criminal tax investigation / prosecution.

Letter 6174

• Indicates the IRS suspects you might not be fully aware of the reporting requirements for cryptocurrency.
• Urges you to review your returns and file an amended or late return if you identify underreported or unreported crypto transactions.
• Unlike Letter 6173, no immediate response is mandated for Letter 6174; however, failure to correct mistakes can still result in further scrutiny if the IRS finds significant reporting deficiencies.

Letter 6174-A

• • Similar in tone and content to Letter 6174, but it warns that further IRS correspondence may follow if your cryptocurrency reporting remains suspect.
  • Once again, you are directed to file an amended or delinquent tax return if you discover reporting errors or missed transactions.
  • Though a direct response is not required, you risk heightened examination if the IRS later confirms noncompliance.

Remember: Receiving any of these letters—6173, 6174, or 6174-A—does not automatically subject you to a criminal tax investigation. Nonetheless, it strongly signals that the IRS is aware of your virtual currency activities and believes there may be gaps or inaccuracies in your filing history. Failing to respond or ignoring clear discrepancies can lead to steep civil penalties, interest accrual, and, in cases of intentional misreporting, possible criminal tax charges. Therefore, it is prudent to consult with a knowledgeable dual-licensed tax evasion defense attorney & CPA before engaging with the IRS. By taking proactive steps—whether filing an amended return or demonstrating your prior compliance—you can significantly reduce the likelihood of a formal audit, criminal tax referral, or other serious repercussions.

John Doe Summonses: The Driving Force Behind These Letters

John Doe Summonses have become a vital weapon in the IRS’s push to uncover underreported cryptocurrency income, particularly as federal courts have broadly endorsed this investigative tactic. Unlike a traditional summons, which targets a specific individual, a John Doe Summons obliges digital asset platforms to release vast troves of user data—often focusing on customers who transact above a certain threshold (e.g., at least $20,000 in trades over the past five years). Over the past several years, the IRS has targeted numerous major exchanges:

• Coinbase (2016): A court-approved summons compelled Coinbase to provide data for thousands of high-value accounts from 2013 to 2015.
• Circle (2019): The IRS demanded records on specific customers with large transactions, aiming to identify underreported gains.
• Kraken (2021): Another federal court allowed the IRS to collect user account details for those exceeding certain trading thresholds.
• SFOX (2022): Continuing its expanded enforcement, the IRS obtained a summons to uncover transaction data on high-volume traders.

Armed with transaction logs, the IRS systematically cross-references user activity against filed tax returns, identifying discrepancies and sending Letters 6173, 6174, or 6174-A to prompt corrective action or gather more information. This elevated level of enforcement reflects the government’s resolve to identify individuals who may be using digital assets to hide taxable income. With scrutiny intensifying, taxpayers engaged in cryptocurrency trades—no matter how large or small—should maintain meticulous records and ensure complete, accurate disclosure of all crypto-related activities. Failure to do so could lead to steep civil tax penalties or, in severe instances, a criminal tax investigation for willful tax evasion.

When Can an Amended Return Become a Criminal Admission?

Filing an amended return (via Form 1040-X or a state equivalent like Form 540-X) is often the go-to method for correcting mistakes—such as unreported cryptocurrency gains or inaccurately calculated cost basis. However, if those “mistakes” suggest you intentionally underreported your income, an amended return can do more harm than good. Rather than appearing as a good-faith correction, it may be construed as a criminal tax admission—particularly if you only filed it after the IRS signaled its suspicion (e.g., issuing a Letter 6173 or launching a tax audit).

Non-Willful Errors vs. Willful Fraud

• Non-Willful Errors: If your initial underreporting stemmed from an honest misunderstanding or simple negligence—and you promptly fix the issue once you realize it—you are generally less likely to face criminal tax repercussions. You still owe any corrected tax, plus penalties and interest, but the behavior doesn’t usually rise to the level of fraud.
• Willful Tax Evasion: If you knew (or reasonably should have known) you were underreporting—by concealing income, inflating deductions, or committing other fraudulent acts—amending your return after the fact may serve as tangible proof of prior wrongdoing. The IRS can view these amended returns as confessions, igniting the potential for criminal tax charges rather than preventing them. Moreover, each amended return can reset the 3 year statute of limitations for tax audits. If the IRS suspects tax fraud, there effectively is no statute of limitations and the IRS can literally audit back to the dawn of time.

Amended Returns vs. Voluntary Disclosures

Taxpayers looking to correct past fraudulent tax returns ordinarily have two main pathways:

Amended Tax Returns

• Works Best for Non-Fraudulent Mistakes: If the underreporting was minimal or clearly unintentional, simply amending the returns and paying the resulting tax, interest, and penalties may suffice.
• Risks if Fraud Is Apparent: Large or repeated corrections, especially those following a history of “mistakes,” can easily trigger an IRS audit or even a criminal tax investigation. If your amendments reveal substantial additional liabilities—or suspicious refunds—the IRS may suspect willful tax fraud.

Voluntary Disclosure (Domestic or Offshore)

• Provides a Near-Guaranteed Pass on Criminal Tax Prosecution if the terms of the program are met: By admitting your willfulness and paying all taxes, interest, and program-accepting specific program penalties, you generally avoid criminal tax prosecution—assuming you comply with the Voluntary Disclosure Program’s rules and initiate disclosure before an eggshell audit, reverse egg shell audit or criminal tax investigation starts.
• Mandatory Civil Audit: The program includes a compulsory tax audit to confirm your eligibility and cooperation. Yet, if handled correctly, the outcome does not lead to prison, even for significant intentional underreporting.  Our job is to get you through the program and secure a pass on federal and state prosecution.  To date, we have never failed at that.
• Why Choose It Over Amending: If you genuinely fear the IRS could potentially view your noncompliance (especially over multiple tax years) as deliberate cheating, a formal voluntary disclosure is the only option to address your willful tax noncompliance history in a manner that removes the risk of criminal tax prosecution. Most criminal tax defense attorneys regard it as the only reliable route to circumvent criminal tax charges for previously fraudulent tax reporting conduct.

A Practical Rule of Thumb

This firm relies on the fact that if the total unpaid tax from your corrected returns is under $30,000, the IRS is less inclined to pursue criminal tax charges because the deterrent effect may be minimal, even if they believe you committed tax crimes. This is not a guarantee: if there are clear “badges of fraud,” the IRS may still investigate / prosecute. Conversely, significant or repeated understatements or circumstances indicating willful evasion over multiple tax years bolster the case for a voluntary disclosure—especially if you can’t justify the discrepancies as innocent mistakes.

• Amended Returns can be straightforward for small-scale, unintentional errors. But if you intentionally concealed income, they can become self-incriminating.
• Voluntary Disclosure offers structured protection from criminal tax prosecution if you acknowledge potential tax fraud before the IRS independently discovers it. You pay all overdue taxes, interest, and penalties and submit to a civil exam, but you typically secure peace of mind against criminal tax prosecution.

In essence, if you are dealing with potential willful acts that could expose you to criminal tax prosecution, rely on the Voluntary Disclosure Program—not standard amended returns—to come clean. By proactively admitting your prior misconduct and paying what you owe, you stand the best chance of avoiding prison time and resolving your tax issues once and for all.

Civil and Criminal Penalties You Risk by Ignoring These Letters

By disregarding an IRS letter or neglecting known crypto discrepancies, you open yourself up to:

Civil Tax Penalties

• Accuracy-Related Penalties (20% of the underpayment)
• Civil Fraud Penalties (75% of the underpayment for willful deception)
• FBAR or FATCA Violations (Potentially steep fines for undisclosed offshore accounts or assets)

Criminal Tax Charges

• Tax Evasion (26 U.S.C. § 7201): Up to 5 years in prison per count (at least one count per calendar tax year that is charged) and substantial fines.
• Filing a False Return (26 U.S.C. § 7206(1)): Up to 3 years in prison plus fines.
• Conspiracy to Defraud (18 U.S.C. § 371): 5-year sentences if you collude with others to hide income.
• Money Laundering: Structured or large-scale crypto transactions can also result in more severe federal charges with jail sentences of 20 years.

How the Tax Law Offices of David W. Klasing Can Help with Your Cryptocurrency IRS Letters

When you receive a Letter 6173, 6174, or 6174-A from the IRS regarding your cryptocurrency accounts, it is imperative to handle the situation swiftly and accurately. At the Tax Law Offices of David W. Klasing, we offer a comprehensive, dual-licensed approach – blending legal advocacy and forensic accounting – to guide you through high-stakes civil or criminal tax controversies. Whether you need to file delinquent returns, correct genuine mistakes via amended returns, or undertake a domestic or offshore voluntary disclosure to address potentially willful noncompliance, our firm provides the tailored defense strategies you require.

As soon as you reach out to us, we meticulously analyze your IRS correspondence, cross-reference your past filings, and assess the extent to which any previous misreporting might expose you to civil penalties or, in the worst scenario, criminal tax prosecution. Should we find that your past conduct appears willful, we can coordinate a structured voluntary disclosure on your behalf before the IRS opens a formal investigation – a proactive move that is virtually guaranteed to secure a pass on criminal tax prosecution if you qualify for the program and meet its terms. If the IRS has already begun an audit or obtained incriminating evidence, our experienced criminal tax defense attorneys and CPAs will negotiate with the IRS, respond to official notices, and help mitigate the fallout while protecting your constitutional taxpayer rights. To date we have never had an audit client that we represented get criminally prosecuted for tax crimes.

Our firm’s commitment to attorney-client privilege and work product protections ensures that discussions about your original or amended returns remain securely protected. If your situation demands an amended return, we help compile and present all necessary documents, minimizing the risk that your amendments are misconstrued as criminal tax admissions. In the event you are best served by a voluntary disclosure, we’ll guide you through each step of Form 14457 submission – carefully balancing transparency, accuracy, and legal defense to reduce or minimize / eliminate potential civil and criminal tax sanctions.

With decades of high-level civil and criminal tax defense experience and a proven track record recognized by an A+ BBB rating and a 10.0 Avvo score, the Tax Law Offices of David W. Klasing is fully equipped to safeguard both your liberty and financial interests. To arrange a reduced-rate initial consultation, call (800) 681-1295 or schedule online today HERE. Acting quickly can mean the difference between a contained civil tax audit and a life-altering criminal tax investigation & prosecution. Let us help you get ahead of any potential crypto-related tax disputes and move toward a secure civil resolution.