IRS Letter 6173 Warning: DO NOT Sign Without Reading This!
When it comes to the IRS and cryptocurrency, it pays to stay alert.
Recently, the IRS has begun issuing a new type of "quasi-audit" letter—Letter 6173—that crypto owners need to take seriously.
This letter isn’t just a routine notice; it’s a wake-up call for anyone who has traded, earned, or held crypto between 2016 and 2020.
Let’s break down
What Is IRS Letter 6173?
At first glance, Letter 6173 may appear straightforward.
It asks recipients to double-check their records, confirm that their tax returns accurately report all cryptocurrency income, and sign a form under penalty of perjury.
But here’s the catch: if you sign and return this letter, you could unknowingly be setting yourself up for a fraud investigation.
The law limits how far back the IRS can audit a tax return. The limit is three years from when the return was filed. If income is underreported by 25%, they can go back six years. There is no limit if the IRS can claim a fraudulent return was filed.
The IRS claims they may refer you to an audit if you fail to comply, but even complying can open Pandora’s box.
Why?
Signing that letter effectively waives some of your legal protections and exposes you to fraud allegations.
In cases of suspected fraud, the IRS can bypass the usual three-year statute of limitations and dig into your financial history indefinitely.
Is This an Intimidation Tactic?
In a word: yes.
Letter 6173 isn’t about providing clarity; it’s designed to pressure taxpayers into compliance through fear.
The vague language, broad date range (2016-2020), and lack of specific allegations are deliberate choices meant to sow doubt and worry.
Let’s be clear: the IRS does have the authority to extend the audit window under two circumstances:
- Underreporting Income by 25% or More
- Filing a Fraudulent Return
However, the IRS must prove these conditions apply before they can proceed.
By signing Letter 6173, you might inadvertently help them build their case.
What Should You Do If You Receive Letter 6173?
Here’s the most important advice: Do not sign or return the letter without consulting a tax professional.
Ignoring the letter may feel risky, but responding prematurely can be far worse.
If you’ve kept accurate records and filed your taxes properly, the burden of proof remains with the IRS.
Without your signature, they face an uphill battle to prove fraud or significant underreporting.
If the IRS does refer your case to audit, remember that they must still meet specific criteria to challenge your returns.
Don’t surrender your rights by signing a document that could work against you.
History Repeats Itself
This isn’t the first time the IRS has used scare tactics with crypto investors.
Back in 2020, the agency issued similar letters to taxpayers.
Despite the panic these notices created, to the best of our knowledge, no one was actually audited as a result.
It’s a troubling strategy—one that undermines trust and creates unnecessary stress for taxpayers.
The real issue here isn’t just the letter; it’s the larger question of how the U.S. government approaches crypto taxation. Instead of fostering compliance through education and support, they resort to fear and intimidation.
This heavy-handed approach does more harm than good, eroding the public’s trust in an already complex tax system.
A Call for Change
As crypto continues to grow, the IRS must adapt its approach to taxation.
The current strategy of issuing ambiguous, fear-inducing letters like 6173 only serves to alienate crypto investors.
A more transparent and supportive framework could encourage voluntary compliance while reducing unnecessary anxiety.
We can only hope that under a new administration, these tactics will be replaced by policies that promote fairness and clarity. Until then, vigilance is key.
Take Action to Protect Yourself
If you’ve received Letter 6173, stay calm. At CryptoTaxAudit, we focus on helping crypto investors handle IRS challenges, including notices designed to intimidate. Our team of experts can:
- Review your tax returns for potential issues.
- Advise you on the best course of action.
- Protect your rights and minimize your exposure to audits.
Don’t let fear dictate your next steps. Visit CryptoTaxAudit.com to learn how we can help you safeguard your financial future.
Act Now: The sooner you get professional advice, the stronger your position will be. Don’t wait until it’s too late to defend your rights and protect your gains.
