The BitcoinTaxes Podcast
IRS Educational Letters 6173, 6174, 6174-A
The IRS has begun sending out educational letters to more than 10,000 cryptocurrency users reminding them that they need to be including their crypto capital gains and losses on their tax forms.
The IRS letters will be referenced as 6173, 6174 or 6174-A, and strive to help taxpayers understand their tax and filing obligations and how to correct past errors.
Alex Kugelman, a tax controversy lawyer with expertise in cryptocurrency and IRS audits, joins us to talk about what this means for crypto users and traders.
Alex Kugelman Episode Highlights
The Three Types of IRS Notices (01:15):
“There’s basically three different letters: 6173, 6174, and 6174-A that were sent out to Coinbase account holders for the years 2013 through 2015 as a result of that summons that the IRS sent to Coinbase. Essentially, Coinbase and the IRS agreed on a certain threshold. That means about 13,000 or so account holders information, including name, social security number and trading data, was provided to the IRS. If you go on the IRS website or call the IRS hotline regarding these letters, these are in fact those people that are being affected. ”
The Difference Between Each Letter (02:15):
“The basic thrust is that the IRS has information that the recipient had some cryptocurrency account and may not have fully reported gains or losses from the activity. So essentially the 6174, 6174-A, and 6173 are essentially predicated on that. The 6174 is what’s been termed, or people have described as, a ‘soft notice’ – just putting people on notice of what the tax reporting obligations are. The 6174-A is a little bit more direct. The 6173 from my perspective is the letter to be taken more seriously by recipient because it requires a response. It has a response date, from what I can tell, of one month from the date of the letter.”
The Goal of the IRS Letters (08:50):
“I would imagine probably two goals of these letters. One is for the group of people who actually received the letters. For each of them to address any outstanding issues – voluntary compliance to get as many people in compliance to all tax reporting obligations. The second, which I think has been really effective, is to spread this news to a wider audience – this was all over the Internet. That’s exactly how the IRS motivates people to comply with tax laws: get the word out and get people thinking ‘right now I have to really take this issue seriously’.”
What the Letters Mean for Crypto Users (10:45):
“For people who just purchased and held onto crypto, what you want to do is just keep good data, good records, but you really don’t have anything to do. However, if you did receive the 6173, then you would respond. You could respond that you don’t have any taxable gains or losses or tax reporting for those years, but pretty much get your records together and just kind of hunker down. ”
“For people who had net losses…I’ve gotten this question a couple of times: the taxpayer made a bunch of trades, ultimately came out on the short end of the stick and had losses and didn’t report anything because they don’t have any additional tax owed. Subjectively that might be true, but ojectively that’s a major problem. If the data provided by the exchange shows a certain number of taxable events or sales it’s not clear from that data that there’s going to be a basis that exceeds what the sales price is. For people that are in that boat, I would highly recommend that they amend returns so you’re actually showing each of the transactions and how you arrive at that figure.”
“I think at this point, especially if you got the letter…you’re now part of a pool of certain taxpayers that has a lot of scrutiny.”
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