Last Updated on July 10, 2026 by Patrick Camuso, CPA
Quick answer (read this first):
What they are: IRS Letters 6174 and 6174-A are advisory crypto compliance letters, sometimes called soft letters. Neither strictly requires a response, which sets them apart from Letter 6173 and from a CP2000 notice. Both signal that the IRS has associated the recipient with digital asset activity it believes may not have been fully reported.
The difference between them: Letter 6174 is purely educational. Letter 6174-A is a warning that the IRS may follow up with enforcement if reporting is not corrected, and it generally suggests a greater IRS concern about possible reporting issues.
Why no response required does not mean no action advisable: A 6174-A creates a documented record that the taxpayer was put on notice. If a later examination confirms underreporting, that record may become one fact among many the IRS considers if it argues the continued noncompliance was willful, which is the line between an ordinary accuracy penalty and a far larger civil fraud penalty.
What to do: Reconcile the referenced activity against what was filed, correct anything that was underreported through amended or delinquent returns, and preserve the documentation, all before the matter escalates to a stage that requires a response.
What Letters 6174 and 6174-A Are
Letters 6174 and 6174-A are two of the three virtual currency soft letters the IRS began sending to cryptocurrency holders in 2019, alongside the response-required Letter 6173. The IRS uses the term soft letter for correspondence that identifies a taxpayer as having potential noncompliance and encourages voluntary correction, usually without starting a formal examination. Both 6174 and 6174-A fall into that category, and neither strictly requires a reply.
That shared feature is where the similarity ends, because the two letters signal different things. Letter 6174 informs the recipient that the IRS has information indicating they hold or held digital assets and reminds them of the reporting rules, without alleging a specific discrepancy. The 6174 letter is generally understood as the version sent when the IRS believes a taxpayer may simply not have understood the requirements, and it does not indicate that the agency plans to follow up.
Letter 6174-A carries a sharper edge, because it reads much like the 6174 but adds one sentence the plain letter does not contain, noting that the IRS may send other correspondence about potential enforcement activity in the future. That single addition changes the meaning of the letter, because it indicates a greater IRS concern about possible reporting issues and signals that the agency is prepared to act on it. Both letters also carry the same underlying warning in their text, that a taxpayer who does not accurately report virtual currency transactions may be subject to future civil and criminal enforcement activity, and both instruct the taxpayer to write the letter number at the top of any amended or delinquent return filed in response.
What Receiving One Signals About IRS Data
A soft letter means the IRS has already associated the recipient’s identity with digital asset activity through one or more data channels, and the letter is the visible surface of information the agency already holds.
Historically, much of that data came from John Doe summonses served on major exchanges, court-authorized demands that compel a platform to hand over records for entire categories of users rather than named individuals, sometimes reaching accounts with as little as twenty thousand dollars in activity across multiple years. The agency has supplemented that with information returns filed by exchanges, blockchain analytics that trace on-chain and DeFi activity, voluntary disclosures, and information sharing with foreign tax authorities. Beginning with 2025 transactions, Form 1099-DA reporting gives the IRS a standardized proceeds feed from custodial brokers, which will drive a new generation of these letters at a scale the earlier waves never reached.
The letter itself restates the governing rule, that under Notice 2014-21 virtual currency is treated as property for federal tax purposes, so that generally every taxable disposition is a reportable event, including selling crypto, paying for goods or services with it, and exchanging one token for another. What the letter does not spell out is what the IRS holds or how it was obtained, which is part of what makes these mailings unsettling. What it does establish is that the recipient is no longer anonymous to the agency on digital asset activity. The productive question is not whether the IRS can see the transactions, but whether the taxpayer can substantiate what those transactions actually were and whether they were reported correctly.
Why No Response Required Does Not Mean No Action Advisable
The most consequential misunderstanding about these letters is the assumption that no response required means no action needed.
For a plain Letter 6174, the absence of a response requirement is roughly what it appears to be, an educational nudge. Even then, ignoring it while leaving genuine underreporting uncorrected simply preserves the exposure for a later, less forgiving stage.
For Letter 6174-A, the stakes behind that distinction are materially higher. A 6174-A creates a documented record that the taxpayer was put on notice that the IRS believed their crypto reporting might be deficient. Willfulness is determined from the totality of the circumstances, so receipt of a 6174-A is not by itself strong evidence of anything, but if a later examination confirms that something was in fact underreported, that record may become one fact among many the IRS considers in arguing that the continued noncompliance was willful. The stakes of that determination are steep, because the civil fraud penalty under Section 6663 runs at 75 percent of the underpayment attributable to fraud, against 20 percent for an accuracy-related penalty, and once the IRS establishes that any portion of an underpayment is due to fraud, the entire underpayment is generally treated as fraudulent unless the taxpayer proves otherwise. A reasonable-cause or good-faith defense may also become harder to sustain once the IRS can show the taxpayer was warned and took no corrective action.
Treating it as a letter that requires no action, simply because it requires no response, can convert a correctable civil reporting issue into something that looks, in hindsight, like a knowing choice not to comply. The letter requires nothing, and the window it opens for correcting reporting before escalation is the most valuable thing about it.
The Compliance Window These Letters Open
The right way to read a 6174 or 6174-A is as the broadest and least costly opportunity a taxpayer will get to become compliant on favorable terms. At this stage the IRS has not proposed a number, has not opened an examination, and has not committed to a position. Correcting the reporting now, before any of that happens, is almost always better than correcting it after.
Using the window well starts with reconciliation. The referenced activity should be reconstructed from exchange records, wallet histories, and on-chain data, then compared line by line against what the returns actually reported, with each disposition reported on Form 8949 and carried to Schedule D, and any correction filed on an amended return using Form 1040-X. That reconciliation determines whether there is anything to correct at all, and if there is, whether the correction runs through an amended return, a delinquent return, or a larger disclosure decision.
Where the reconciliation confirms underreporting, correcting proactively is the point. A taxpayer who amends before the IRS escalates is in a materially stronger position than one who waits, both because voluntary correction is generally treated more favorably than forced compliance and because it removes the underreporting that the IRS would otherwise point to in any later willfulness argument. Amending is not without cost, since the IRS retains the right to assess interest and penalties on the corrected amounts, including the 20 percent accuracy-related penalty where the statutory requirements are met. The timing of the correction matters to that exposure, because a taxpayer who acts promptly and makes a reasonable attempt to report the correct tax is in a better position to avoid or reduce the accuracy-related penalty than one who waits to be forced, and a statement explaining why the transactions were not reported earlier, supported by documentation, can further help reduce or abate what remains.
For investors whose records are incomplete, which describes most people who receive one of these letters, the substantive work behind any correction is cost basis reconstruction, rebuilding the transaction history into a lot-level ledger that supports whatever position the return takes. Our crypto cost basis reconstruction practice is built around exactly this work, and taxpayers with unfiled years behind the letter should start with our guide to fixing crypto taxes for years you never filed.
When the Underlying Problem Is Larger
For most recipients, a 6174 or 6174-A points to a correctable civil issue, and the compliance window handles it. For taxpayers whose past noncompliance was knowing rather than accidental, the right path may run through the IRS Voluntary Disclosure rather than a quiet amendment.
The distinction matters because a 6174-A specifically speaks to taxpayers the IRS suspects of actual underreporting, and quietly amending returns in that situation carries its own risk. Where prior conduct was willful, an amended return filed outside a formal program can operate as evidence of the earlier underreporting rather than a cure for it, which is the opposite of what the taxpayer intends. Whether prior conduct was willful is a legal determination with high stakes, and it should be assessed before any correction path is chosen, because entering the wrong process, or amending outside a formal program when a disclosure was the safer route, may jeopardize protections that would otherwise remain available.
The age of the activity does not necessarily put it out of reach, because the statute of limitations on assessment is longer than many taxpayers assume. The IRS ordinarily has three years to assess additional tax, but that window extends to six years where a taxpayer omits more than 25 percent of gross income, and there is no limitations period at all on a return the IRS can show was fraudulent. Crypto activity from years a taxpayer assumes are closed can therefore remain open, and a soft letter is often the first sign the agency is looking at exactly those years.
Taxpayers who held crypto on foreign exchanges carry a related consideration, because activity on non-US platforms may trigger separate reporting obligations under the FBAR and FATCA regimes whose penalties can exceed the underlying income tax. A response to a crypto letter that resolves the income side while ignoring foreign reporting leaves that exposure open. Foreign reporting also has its own correction channels, including the Streamlined Filing Compliance Procedures for non-willful taxpayers and the Voluntary Disclosure Practice for willful ones, and filing prior-year forms outside those channels can amount to a quiet disclosure that the IRS views unfavorably.
A Real 6174-A Fact Pattern
The 6174-A is not an abstraction for this firm, because one resolution engagement began with exactly this letter, sent to an investor with roughly a decade of trading activity across multiple exchanges and wallets, much of it never reported and none of it reconstructed into defensible records. The letter did not require a response, but ignoring it would have left a documented warning sitting in front of a decade of unreported activity, the kind of combination the IRS can point to if it later argues that continued noncompliance was willful.
The work was reconstruction from the ground up. Rebuilding ten years of transaction history into a lot-level ledger, identifying what was actually owed once accurate basis was established, and correcting the reporting through the proper channel turned an open-ended exposure into a resolved matter on the taxpayer’s own terms rather than the IRS’s. The full fact pattern is covered in our case studies, and it is the clearest illustration of why a letter that requires no response can still require serious work.
Letters 6174 and 6174-A in the Enforcement Picture
These letters sit near the bottom of an enforcement ladder that runs from advisory soft letters through automated notices to full examination. The 6174 is the lightest touch, the 6174-A a step firmer, and both sit below the response-required 6173 and well below a CP2000 automated notice or an examination.
Understanding that position is what makes the compliance window actionable. A soft letter is the earliest and most workable point on the ladder, which means it is also the largest remaining opportunity to establish compliance before the IRS commits to a position. Our guide to IRS crypto letters covers the full family and how the letters escalate, our guide to Letter 6173 covers the response-required letter that sits just above these, and our guide to the crypto CP2000 notice covers the automated proposal stage beyond that.
For investors who received a 6174 or 6174-A and need to reconcile and correct before the matter escalates, our cryptocurrency tax resolution practice handles the full process. Work with a crypto CPA established in this market since 2016.
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This article is provided by Camuso CPA for general informational purposes and does not constitute legal, tax, accounting, or investment advice. Tax laws and regulations are evolving rapidly and the information presented may not reflect current guidance. Reading this article does not create a CPA-client relationship. For advice on your specific situation, schedule a consultation with Camuso CPA.
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