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IRS Letter 6173: Don’t Panic, Here’s How to Fix It

ByMatt Walrath

IRS Letter 6173 is the most serious crypto tax notice. The letter states the IRS believes you failed to report virtual currency transactions. You must respond by the deadline printed on the notice. Ignoring the letter leads to audits, penalties, and possible criminal investigation.

Reviewed by Michael Bergloff, CPA, MST | US tax reviewer for Crypto Tax Made Easy | Last reviewed June 2026

A Letter 6173 usually means the IRS thinks you underreported crypto activity. Our guide to how crypto is taxed covers the rules most people get wrong.

What IRS Letter 6173 Means

Letter 6173 is not informational. The notice requires action from taxpayers who receive it.

The IRS already has evidence of your crypto activity and thinks you underreported crypto income or failed to file entirely. Claiming you never traded won’t work. You must respond with documentation or amended returns. Your job is to prove you reported everything correctly or fix past mistakes.

When Will You Receive the 6173 Letter

You’ll receive the letter if:

  • Crypto exchanges reported your transactions to the IRS using Form 1099-K or internal data.
  • The IRS compared that exchange activity to your tax return and found discrepancies.
  • You made an honest mistake, such as forgetting to report mining or staking rewards.
  • Your crypto tax software missed transactions or mislabeled them.
  • You failed to report complicated DeFi activity because it was hard to track.
  • You used multiple exchanges, creating confusion in your transaction history.
  • You assumed that because you lost money, you didn’t need to report the trades (the IRS requires all transactions to be reported, regardless of profit or loss).
  • You failed to file a complete history of your trades, which violates tax law.

Explanation for Beginners: Why the IRS Sent You a Crypto Letter

The IRS gets reports from crypto platforms like Coinbase or Kraken. If the reports show crypto trades, but your tax return doesn’t, the IRS assumes you left something out.

That’s why you got their letter; it’s not random. They already know you did something with crypto, and now they want answers or corrections.

What the Letter Requests

Letter 6173 asks you to verify previously reported income or submit delinquent returns. The notice may request supporting documentation for specific tax years. The IRS wants to see cost basis calculations, transaction records, and wallet addresses.

You have three options:

  1. Respond with proof that your original return was accurate.
  2. File an amended return to correct errors.
  3. Submit back taxes if you never filed them. Choosing to do nothing is not an option.

Not sure what to do?

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How to Respond to Letter 6173

  • Gather all records from crypto exchanges for the years in question. Download the complete transaction history from every platform you used. Include wallet transfers, trades, staking rewards, and mining income.
  • Calculate your tax liability for each year. Compare the results to what you originally filed. If you owe additional taxes, prepare to pay them. Interest accrues from the original due date. Penalties add up quickly on unpaid amounts.
  • File amended returns using Form 1040-X for any year with errors. Attach a statement explaining the mistake. Include all supporting documentation with your response. Send everything by certified mail before the deadline. Keep copies of what you submit.
  • If your original returns were correct, write a detailed response letter. Explain why the IRS data is wrong or incomplete. Provide proof that your filing was accurate. Include transaction records, wallet statements, and previous tax forms. The burden of proof falls on you.

Explanation for Beginners: What to Do After Getting the Letter

If you get Letter 6173, the IRS wants to see your crypto records. That means downloading your full trading history from every platform, even if you lost money. Use software to help if needed. If you missed anything on your taxes, you need to fix it by filing an updated return. If you think you did everything right, write a letter to show your proof. Always send copies and keep records of what you mailed.

Penalties for Non-Compliance

Ignoring Letter 6173 triggers automatic penalties. The IRS charges a failure-to-file penalty of 5% per month. The cap reaches 25% of unpaid taxes. A separate failure-to-pay penalty adds 0.5% monthly. Interest compounds daily on the total amount owed.

IRS Letter 6173

Accuracy penalties apply when underreporting exceeds 20% of the correct income. The IRS adds 20% to your tax bill for a substantial understatement. Fraud penalties reach 75% if the agency proves intentional evasion. Criminal prosecution remains possible for serious cases.

When to Hire Professional Help

As soon as you get the letter. Contact our experts at CTME, as we understand IRS procedures and crypto reporting rules. We’ll review your situation and advise on the best response strategy. Accountants familiar with cryptocurrency taxes know how to calculate complex transactions.

Professionals reduce the chance of making mistakes during the response process. There’s also the option of requesting an extension if more time is needed.

All in all, having representation shows you take the matter seriously. The agency may offer better settlement terms with professional involvement.

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What Happens After You Respond

The IRS reviews your submission and supporting documentation. The process takes several weeks to several months. You may receive follow-up requests for additional information. Answer promptly to avoid delays.

If the agency accepts your response, you will receive a closure letter. No further action is required. If they disagree, you get a notice of deficiency. The document proposes additional taxes, penalties, and interest. You have 90 days to dispute the findings.

Dispute options include requesting an appeals conference or filing a Tax Court petition. Both paths require documentation and legal arguments. Most taxpayers settle before reaching court. Payment plans are available if you cannot pay the full amount immediately.

How to Prevent Future IRS Letters

It’s a lot easier to avoid IRS trouble than to fix it, and that starts with keeping track of every crypto move all year long. Treat your crypto activity like regular financial paperwork: link all exchanges and wallets, download full transaction history, and store backups (screenshots, CSVs, wallet exports) in more than one place. When tax season comes, everything you need is already organized.

IRS Letter 6173

You must always

  • Track and store every crypto transaction
  • Make estimated payments if you’re a frequent trader
  • File on time, even if you can’t pay in full
  • Be honest and organized with your crypto records

The IRS prioritizes honest, complete reporting. If something’s missing, explain it, don’t ignore it. Clear documentation and a good-faith effort go a long way in avoiding further contact from the IRS.

Frequently Asked Questions

Do I need to report crypto income on my tax return?

Yes, anyone involved in cryptocurrency transactions must report crypto income as part of their annual tax filing.

Is every crypto transaction subject to tax reporting?

Yes, all crypto transactions, even the ones with no gains, are subject to reporting requirements under U.S. tax law.

What should I do if the letter requires documentation I don’t have?

Gather as much supporting information as possible, and consider consulting a tax professional to reconstruct missing records for proper tax filing.

Should I ignore Letter 6173 if I believe I already reported everything?

No, even if everything was reported, the letter requires a response with documentation to avoid penalties or further IRS action.

Does reporting crypto income late affect my taxes?

Yes, late tax filing or underreporting may result in interest, penalties, or audits, even if the mistake was unintentional.

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Disclaimer:

The information provided by Crypto Tax Made Easy on this website and through our services is intended for general informational purposes only and does not constitute professional, financial, accounting or tax advice.

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