The United States Internal Revenue Service (IRS) is sending letters to crypto investors to clarify crypto tax filing requirements and, in certain cases, compel them to pay back taxes. The IRS announced its letter campaign in a press release on July 26.

The IRS states that it has sent letters to 10,000 crypto investors, asking some to amend their tax filings, while compelling others to pay back taxes and/or interest and penalties. The revenue service states that the letters should be delivered by the end of August. 

Per today’s announcement there are three different letters: Letter 6173, Letter 6174 or Letter 6174-A, which “strive to help taxpayers understand their tax and filing obligations and how to correct past errors.” IRS Commissioner Chuck Rettig said:

"The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

Skepticism toward IRS

Some are more skeptical about the IRS’s intentions. According to a July 26 Forbes report by crypto tax attorney Tyson Cross, the tax authority could be using a list of taxpayers identified by Coinbase in 2017 to conduct a blanket campaign, saying:

“This would seem to indicate the IRS is sending these letters to taxpayers as a fishing attempt without any real belief that each recipient has under-reported.”

Cross says that several of his clients who accurately reported have received letters, and writes that several other tax professionals have revealed that their own clients — despite accurate reporting — had also received Letter 6174-A.

Letter campaign follows low filing rate for crypto taxes

Cross advised investors not to panic should they receive the letter, but to thoroughly ensure the accuracy of their tax returns, given that at the very least it means they are on the agency’s radar. 

As previously reported, data released ahead of the close of the preceding tax year indicated that just 0.04% of tax filers were reporting capital gains from crypto investments to the IRS.

Back in July 2017, the IRS had required that major U.S. crypto exchange Coinbase hand over detailed information on every one of its then 500,000+ users in an attempt to prevent tax evasion. However, a court order in November 2017 reduced this number to around 14,000 “high-transacting” users, which the platform later reported as 13,000.

An alleged presentation by the agency earlier this month reportedly revealed that the IRS hopes to use Grand Jury subpoenas on firms such as Apple, Google and Microsoft to check taxpayers’ download history for crypto-related applications.