At the end of July 2019, the IRS started sending out educational letters to cryptocurrency traders. There are 3 types of letters that the IRS sent out: the 6173, 6174, and 6174-A. These were sent out to Coinbase account holders for the years 2013 through 2015 as a result of that summons that the IRS sent to Coinbase. About 13,000 account holders' information, including name, social security number and trading data, were provided to the IRS. The basic idea of these notices is that the IRS has information that the recipient had some cryptocurrency trading activity and may not have fully reported gains or losses from the activity.
The 6174 and 6174-A are ‘soft notices’ – the primary purpose of these notices is making recipients aware of what their tax reporting obligations are. Neither the 6174 or 6174-A require recipients to respond to the letter, but note that they may have a requirement to amend prior year tax returns to include any cryptocurrency transactions and report the capital gains or losses, which may increase their tax liability. The 6173 should more seriously by recipients, because it does require a response within a limited time-frame.
As Bitcoin and other cryptocurrencies are subject to capital gains, taxpayers are responsible for calculating and reporting their gains. Since there is no de minimis exception, as with fiat currencies, all transactions must be included. This is often a record-keeping burden on tax payers, as cost basis is not always known when crypto is moved between wallets.
