Crypto Nudge Letter from the IRS: What to Do First

Quick answer: A crypto “nudge letter” is an IRS notice (Letter 6173, 6174, or 6174-A) saying the agency believes you may have under-reported virtual currency activity. Check the letter number in the upper right corner. Letter 6173 asks for a response. The other two are informational. Don’t ignore any of them.

The mailbox moment

You open an envelope from the IRS. It doesn’t say “audit.” It doesn’t say “you owe.” It says the IRS has information suggesting you may not have reported cryptocurrency correctly, and it points you to your return.

The first rule: don’t react before you’ve identified which letter you hold. The three versions carry very different expectations, and treating them all as the same emergency (or the same nothing) is how people make costly mistakes.

What a nudge letter is, and what it isn’t

A nudge letter is a compliance outreach notice. It is not an audit notice, a deficiency notice, or a bill. The IRS used these letters to prompt voluntary correction of virtual currency reporting. The 2019 campaign was publicly announced by the IRS and reached more than 10,000 taxpayers, and the agency sent further batches afterward .

The IRS has said it obtained taxpayer information from several sources. One well-documented source is the John Doe summons served on Coinbase, which a federal court enforced in narrowed form in 2017. Other sources aren’t fully public, so don’t assume you know how you were identified.

A nudge letter also isn’t proof you did anything wrong. People receive them after reporting correctly, after reporting partially, and after never having traded much at all. But it does mean your name is linked to digital asset activity in IRS records.

Step one: identify the letter Letter Tone Response expected? What it generally asks 6173 Most serious of the three Yes, with a deadline stated on the letter (commonly 30 days ) Review your returns, correct them if needed, and respond to the IRS 6174 Educational No response required Reminds you that virtual currency is reportable and urges you to check prior filings 6174-A Educational No response required Similar to 6174, a softer reminder about reporting obligations

“No response required” is not the same as “nothing to do.” If your returns were wrong, the IRS has now told you it noticed. That matters if a later examination asks whether you acted in good faith.

Step two: confirm it’s real

Crypto-themed scams that imitate IRS mail do circulate. Before you act:

Check the letter number and a notice-specific reference printed on the letter. Look up the IRS’s own description of the letter on irs.gov rather than trusting links or phone numbers printed in the letter alone. Never send crypto, gift cards, or wallet seed phrases to anyone claiming to be the IRS. A genuine IRS letter will never need your seed phrase. If anything seems off, call the number on irs.gov, not a number printed on the suspicious document. Step three: reconstruct what you actually did

The core question is simple: do your filed returns match your real activity for the years the letter covers? Work through it in this order:

Collect every account. Exchanges, brokerages, wallets, DeFi protocols, NFT marketplaces, and any exchange you closed years ago. People most often forget old accounts. Export full transaction history (CSV or API data) for each year named in the letter. Rebuild cost basis. Transfers between your own wallets aren’t taxable, but if an exchange doesn’t see the original purchase, it may show a basis of zero. That inflates apparent gains. Classify each event. Selling for fiat, trading one coin for another, spending crypto, and receiving crypto as income (staking, mining, airdrops, payment for work) are taxed differently. Compare against what you filed. Look at Form 8949, Schedule D, and Schedule 1 or Schedule C income, plus the digital asset question on Form 1040.

The reason the basis step matters: the IRS sees activity in broad strokes. You see the full picture, including losses and transfers it may be misreading.

Step four: choose your path

Path A: Your returns were accurate. Gather your supporting records and keep them. For Letter 6173, respond by the deadline explaining that your returns were correct and attaching or offering supporting documentation. Silence isn’t a strategy, even when you’re right.

Path B: You found errors. File an amended return (Form 1040-X) for each affected year, pay what’s owed, and respond to the letter if it requires a response. Interest accrues from the original due date, so delay costs money.

Path C: You’re unsure, or the amounts are large. Talk to a CPA, enrolled agent, or tax attorney who has handled digital asset matters. If there’s any possibility the underreporting was willful, speak to a tax attorney before you file or respond. This isn’t a place for guessing.

What’s actually at stake

Rough exposure, in plain terms (verify current figures with the IRS or a professional):

Tax plus interest on the unreported gains or income. Accuracy-related penalty: generally 20% of the underpayment attributable to negligence or substantial understatement. Civil fraud penalty: 75%, reserved for fraudulent underpayments. Statute of limitations: typically three years from filing, extended to six years if you omit more than 25% of gross income. Fraud or non-filing has no limit.

Voluntary correction before an examination begins is generally viewed far more favorably than being found out. That’s a reason to act, not a reason to panic.

Why this keeps happening: the reporting trail is getting thicker

Since the nudge-letter campaigns, the paper trail has grown. Form 1040 asks every filer a direct digital asset question. Brokers now report digital asset sales on Form 1099-DA, with gross proceeds reporting for 2025 transactions and cost basis reporting phasing in for 2026 . Matching 1099-DA data against your return is simpler for the IRS than the old methods.

If you receive a nudge letter now, the data behind it may be better than it was in 2019. Assume the IRS can see more, not less.

Practical mistakes to avoid Ignoring Letter 6173 because it “isn’t a bill.” Responding from memory without exports and basis calculations. Filing a quick amendment that fixes one exchange while missing three others. Deleting accounts or records. Never do this. Treating wallet-to-wallet transfers as sales, which overstates gains, or ignoring them entirely, which loses basis tracking. Responding on the phone before you’ve reviewed the numbers. Where crypto tax fits

Holdertax explains what IRS, HMRC, ATO, and CRA notices mean and how jurisdiction rules apply. For a nudge letter, the useful starting point is identifying the exact notice and the tax years involved before you do anything else. crypto tax software is an educational resource, not a law or accounting firm, and nothing here is legal or tax advice.

The short version

Identify the letter. Confirm it’s real. Rebuild your history. Compare it against your filings. Then correct, document, or get professional help. Done in that order, a nudge letter is usually a manageable review rather than a crisis.

Did the letter cover several tax years, or just one? That’s the first detail worth settling, because it determines how much of your history you need to rebuild.