IRS Letter About My Crypto Transactions - Do I Really Owe Taxes?

The IRS treats cryptocurrency as property, not currency, which means virtually every crypto transaction is a taxable event - not just when you cash out to USD. Here's what's likely happening: Anytime you trade one crypto for another, use crypto to buy something, or sell crypto for USD, you trigger a taxable event. The IRS calculates your gain/loss based on the difference between your "cost basis" (what you paid when you acquired the crypto) and the fair market value when you disposed of it. Even trading Bitcoin for Ethereum is taxable. You should first verify what specific transactions they're referring to. The IRS typically gets information from exchanges that report via 1099 forms. You'll need to gather all your transaction records from whatever platforms you used for trading. Don't just pay the assessment without reviewing it - the IRS calculations might not account for your actual cost basis. You have options: 1) If you agree with their assessment after reviewing your records, you can pay the amount. 2) If you disagree, you can respond with documentation showing your actual transactions and correct tax calculation. 3) You might want to consult with a tax professional who specializes in cryptocurrency taxation.

I had a similar issue last year with crypto taxes. It was sooo frustrating trying to figure out what I actually owed vs what the IRS claimed. I ended up using https://taxr.ai to help sort through my transactions. It saved my butt because it automatically analyzed all my crypto wallets and exchange history, then showed me exactly which transactions the IRS was probably flagging. The thing that helped the most was that it could calculate the proper cost basis for each trade. Turns out the IRS was assuming I had $0 cost basis for some transactions (which is why they thought I owed so much). After I uploaded all my transaction data to taxr.ai, it generated a complete report showing my actual tax liability was like 70% less than what the IRS claimed.

Just wanted to update after trying taxr.ai from the recommendation above. Holy crap, this actually worked! I uploaded my exchange histories and it found several transactions where the IRS was calculating my gains completely wrong. In my case, I had done some coin swaps between ETH and some altcoins last year. The IRS was treating each swap like I had $0 cost basis (basically like I got all the coins for free), when in reality I had paid for the original ETH years ago. The service created a proper audit defense report that showed my actual cost basis for everything. Just sent my response to the IRS yesterday with the documentation. The difference was huge - they claimed I owed $4,300 but after proper calculation it's more like $850. Still waiting for their response but feeling way more confident now.

If you're getting nowhere with the IRS letter and need to actually talk to someone (which is IMPOSSIBLE these days), I used https://claimyr.com to get through to an actual human at the IRS. Check out their demo: https://youtu.be/_kiP6q8DX5c I spent 3 days trying to call the IRS directly about my crypto tax issue - either got disconnected or told to call back later. Claimyr basically waits on hold for you and calls when an agent picks up. Got through in about 45 minutes when normally I couldn't get through at all. The agent I talked to actually explained which transactions they were flagging and gave me time to gather my records before making a decision. Much better than just responding to a vague letter.

Well, I'm back to eat my words. After seeing the recommendation here, I tried Claimyr yesterday because I was desperate to talk to someone at the IRS about my crypto tax issue. Not gonna lie, I was 100% sure it wouldn't work and I'd be out whatever they charged. But about an hour after signing up, I got a call saying they had an IRS agent on the line. I was shocked! The agent actually reviewed my case while I was on the phone and confirmed which transactions they were questioning. Turns out they had data from an exchange I used briefly in 2022 but didn't have my complete trading history. The agent explained exactly what documentation I needed to submit to get the amount adjusted. Saved me thousands potentially. Sometimes you gotta admit when you're wrong - this service actually delivered.

Something everyone should know - the IRS has been sending out thousands of these crypto letters as part of their "compliance campaign." There are actually 3 different types of crypto letters they send: Letter 6173 - Most serious, requires response Letter 6174 - Informational, response not required Letter 6174-A - Middle ground, suggests filing amended returns Which type did you get? The response required and urgency depends on which letter they sent you. Check the letter number at the top right.

FWIW I use Koinly for tracking all my crypto transactions throughout the year. It connects to most exchanges and wallets, tracks your cost basis, and generates tax forms. Might be too late for your current IRS issue, but for next year it makes crypto taxes way simpler.

Don't panic - these IRS crypto letters are becoming more common, but they're often wrong about the amounts owed. The key thing to understand is that the IRS typically assumes $0 cost basis for any crypto transactions they can't fully trace, which massively inflates what they think you owe. Since you got a 6173 letter, you absolutely must respond within 30 days. Here's what I'd recommend: 1. Gather ALL your transaction records from every exchange/wallet you used 2. Calculate your actual cost basis for each transaction (what you originally paid for the crypto) 3. Document any crypto-to-crypto trades with proper fair market values at the time of each trade The $6,800 they're claiming is likely based on incomplete information. If you bought $15,000 worth of crypto and it appreciated before you traded it, your actual taxable gain would be much less than what they're assuming. You have three options: pay the assessment, file an amended return with correct calculations, or dispute it entirely with documentation. Given the amount involved, it's probably worth consulting with a tax professional who specializes in crypto taxation - they can often get these assessments reduced significantly or eliminated entirely. Don't just pay it without fighting back. The IRS crypto enforcement is aggressive but often inaccurate.

I went through something very similar last year and want to share what worked for me. The IRS sent me a letter claiming I owed $4,200 for crypto transactions, but after properly documenting everything, I ended up owing only $380. The biggest mistake people make is not keeping detailed records of their cost basis. Every time you buy crypto, that purchase price becomes your cost basis. When you trade or sell, you calculate gains/losses based on the difference between your cost basis and the fair market value at the time of the transaction. Here's what saved me: I went back through all my exchange accounts (Coinbase, Kraken, Binance) and downloaded every single transaction CSV file. Then I traced each coin from purchase to sale/trade. The IRS was assuming I got my crypto for free (zero cost basis) for transactions they couldn't fully trace. Since you have a 6173 letter, you MUST respond within 30 days. Don't ignore it. I'd recommend either using one of the crypto tax software tools mentioned here or hiring a CPA who specializes in crypto. The upfront cost is way less than paying an inflated IRS assessment. Also keep in mind that crypto-to-crypto trades are taxable events, but you can often have losses that offset gains. The IRS letter probably doesn't account for any losses you might have had.