Recently, the Internal Revenue Service (IRS) has increased the number of letters sent to cryptocurrency investors, emphasizing the importance of tax compliance.
Types of IRS Letters
Crypto investors mainly receive three types of letters from the IRS: 6173, 6174, and CP2000. Form 6174 is considered less urgent as it serves an informational purpose and does not require action. However, it signals that the IRS is aware of the individual's crypto investments, and they should verify that past reports were accurately filed.
Letter 6173, on the other hand, indicates a need for attention, as it communicates that the taxpayer may have underreported their crypto-related income. In contrast, CP2000 is a notice that specifies the amount that needed reporting.
Investor Reactions to Letters
Some investors perceive the IRS's approach of sending letters as harassment. Social media posts reflect dissatisfaction, with individuals expressing frustration over their activities being questioned by the government without accountability. For instance, one recipient stated, 'I didn’t do anything wrong. But I’m going to keep getting pissed any time the gov questions me when they don’t hold themselves accountable for anything.'
IRS Plans and Legislative Impact
With the rising scrutiny over cryptocurrency transactions, the IRS will have more information than ever before. This year, the introduction of Form 1099-DA is expected, which will be the first IRS-specific tax form for cryptocurrencies. Meanwhile, discussions surrounding the potential abolition of the IRS itself are gaining traction among lawmakers, yet the current situation demands a proactive attitude from investors regarding their tax obligations.
Given the increased scrutiny by the IRS on cryptocurrency investments and growing information, it is crucial for investors to pay careful attention to their tax obligations and strive for compliance with regulations.
