In an information release dated July 26, the IRS stated that it is in the process of sending out “educational letters” to taxpayers that may have had accounts with crypto transactions. By the end of August, the information release indicates, it will have sent out some 10,000 letters.

There are three versions of these letters. Letter 6174 seems to be more informational – alerting the taxpayer that the taxpayer may have accounts with crypto assets and provides some guidance as to tax rules surrounding such assets. A second letter (Letter 6174A) is still informational but is more strongly worded in that it indicates that the taxpayer may not have properly reported crypto asset transactions on a tax return and should review their compliance. Finally, Letter 6173 states that the IRS is aware that the taxpayer has entered into crypto transactions and may not have reported such transactions properly on a tax return and requires the taxpayer to submit a response. Absent a response to the 6173 letter, the taxpayer may be referred to examination.

It is unclear from the notice how the IRS is grouping the taxpayers for the different letter categories. One suspects that trading volume may be a factor and certain taxpayers (with 6173 letters) are being prioritized for enforcement.

The letters are directed at taxpayers trading virtual assets and not to brokers or firms facilitating the trade or exchange. But firms may begin to receive inquiries from customers who may require trade data and other information to complete their review of their crypto tax compliance or to amend prior year tax returns.

The letters themselves do not contain additional guidance on crypto taxation, but the information release notes that additional guidance on taxation of virtual assets should be expected in the “near future.”