What Are IRS Letters 6173 and 6174?
The Internal Revenue Service (IRS) sends various letters to taxpayers for different reasons. Among these, IRS Letter 6173 and Letter 6174 are significant because they relate to virtual currency transactions. These letters are part of the IRS’s ongoing efforts to ensure compliance with tax obligations associated with virtual currencies.
IRS Letter 6173: The Action-Required Notification
What Does It Mean to Receive Letter 6173?
If you’ve received IRS Letter 6173, it’s a clear indication that the IRS believes you have participated in virtual currency transactions and may have failed to report income and pay the resulting tax from one or more transactions. Unlike Letter 6174, Letter 6173 requires a response by a specified date.
How Should You Respond to Letter 6173?
It’s crucial to take Letter 6173 seriously. The IRS expects you to take one of the following actions:
- If you’ve already complied with the tax requirements, you need to provide the requested proof.
- If you have not complied, you must take corrective action by filing amended or delinquent returns.
- If you do not agree with the letter, you should provide a detailed explanation.
Failure to respond to Letter 6173 could lead to an audit or other enforcement action.
Letter 6173 requires immediate intervention – If you need help figuring out what to do so you can avoid IRS consequences – Click here to schedule a free consultation call with one of our crypto tax accountants.
IRS Letter 6174: A Soft Notice Without Immediate Consequences
The Nature of Letter 6174
IRS Letter 6174 is more of a heads-up than a threat. It informs you that the IRS has information that you may have had virtual currency transactions. This letter doesn’t require a response but serves as a reminder to report any virtual currency transactions that you may have failed to include on your tax returns.
Best Practices After Receiving Letter 6174
Even though there’s no immediate action required, it’s wise to review your previous tax returns to confirm that you have reported all your virtual currency transactions. If you find any discrepancies, it’s in your best interest to amend your returns accordingly.
The Importance of Accurate Reporting of Virtual Currency Transactions
Tax Implications of Virtual Currency
The IRS treats virtual currencies as property for tax purposes, meaning that they are subject to capital gains and losses rules. Taxpayers must report all transactions, including buying, selling, trading, and using virtual currencies to pay for goods or services.
Record-Keeping for Virtual Currency
Maintaining detailed records of your virtual currency transactions is vital. It ensures that you can accurately report any capital gain or loss on your tax returns. Records should include receipts, sales, exchanges, and any other relevant information.
Conclusion: Staying Compliant with the IRS letter 6173 and 6174
Understanding and responding to IRS letters 6173 and 6174 is crucial for virtual currency users. Whether it’s a call to action or a warning, these letters indicate that the IRS is paying attention to virtual currency transactions. It’s essential to stay informed about your tax obligations and maintain proper records to avoid potential penalties or audits.
Remember, consulting with a tax professional who specializes in virtual currency can provide you with personalized advice and help you navigate the complexities of tax law as it relates to digital assets.
