Why Crypto Investors Are Receiving Internal Revenue Service Warning Letters

by Khyathi Dalal Benzinga Staff Writer

Zinger Key Points

CoinLedger CEO David Kemmerer reports a 758% surge in IRS warning letters sent to U.S. crypto investors over the past few weeks.
Starting January 2026, new IRS rules will require brokers to report both gross proceeds and cost basis for digital asset sales.
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According to CoinLedger CEO David Kemmerer, thousands of U.S. crypto investors have recently received warning letters from the Internal Revenue Service (IRS), marking a significant escalation in the agency's efforts to enforce tax compliance in digital assets.

What Happened: In an interview with The Block, Kemmerer revealed that IRS letters targeting crypto investors have spiked 758% over the last two months, based on CoinLedger's internal tracking.

This surge comes ahead of the IRS's new 1099-DA reporting rules, set to take effect in January 2026. These regulations will require all crypto brokers to report both the gross proceeds and cost basis of digital asset sales, giving the IRS a far clearer picture of investor gains and losses.

Crypto investors may receive one of several IRS letter types, each indicating a different level of concern:

Letter 6174: Educational only — no action required.
Letter 6174-A: Indicates the IRS suspects underreporting — review and amend returns if necessary.
Letter 6173: More serious — IRS believes crypto income was underreported; a response is mandatory to avoid audit.
CP2000: Most severe — proposes additional tax due to income discrepancies; response required within 30 days.

Even compliant taxpayers can receive these notices due to cost basis errors, especially from wallet-to-wallet transfers, which are non-taxable but often misreported.

Also Read: Corporate Bitcoin Buying Spree: Booming Strategy Or Ticking Financial Time Bomb?

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Why It Matters: Despite rumors that the administration may eliminate crypto taxes, no legislative change has occurred.

Many investors wrongly assume they're not required to report crypto trades, leading to confusion, anxiety, and potential penalties.

CoinLedger emphasizes that most letter recipients are not tax evaders, but ordinary investors who may have made honest reporting mistakes—often from earlier bull cycles like 2021. On receiving the letter –

If compliant: Gather documentation like trade histories and 1099 forms to validate your return.
If non-compliant: Amend past returns using Form 1040X and consider including a written explanation.
If unsure or facing a serious letter (e.g., CP2000 or Letter 6173): Consult a tax professional immediately

In February, CoinLedger reported the average crypto investor gained $5,482 in 2024, with Bitcoin BTC/USD and Hyperliquid HYPE/USD leading unrealized profits. On the flip side, Ethereum ETH/USD, Cardano ADA/USD, and POL POL/USD posted the largest losses.