The U.S. Internal Revenue Service has established a structured system for issuing crypto tax compliance letters. According to Clinton Donnelly, an expert in U.S. crypto tax law and IRS audits, the agency sends roughly 10,000 letters per month to individuals believed to have engaged in cryptocurrency transactions. This audit campaign has reportedly been ongoing for approximately two years.
Three Types of IRS Letters
The IRS issues three distinct types of warning letters, each carrying different implications for recipients.
- Letter 6174 is the least serious, functioning primarily as a compliance notice. Receiving it does not automatically trigger a formal audit, but taxpayers are advised to review their returns and correct any errors.
- Letter 6174-A provides more detailed guidance on crypto tax obligations while remaining a non-audit letter.
- Letter 6173 is the most serious, requiring taxpayers to sign a statement under penalties of perjury confirming their compliance or explaining their tax treatment.
Legal Challenge Over Alleged Preferential Treatment
The Citizens for Responsibility and Ethics in Washington (CREW) filed an amicus brief with the IRS on September 9, arguing that an alleged arrangement protects President Donald Trump, his family, and affiliated businesses from certain tax audits. CREW contends this arrangement violates the Constitution's Domestic Emoluments Clause.
The lawsuit centers on a $1.776 billion anti-weaponization fund and an alleged IRS immunity order that CREW and the National Treasury Employees Union claim could provide special protection from tax enforcement. According to the brief, tax audits were reportedly underway when the immunity order was signed. CREW cites allegations that Trump could have faced more than $100 million in additional taxes related to claimed Chicago property losses.
International Crypto Tax Developments
Meanwhile, other jurisdictions are implementing their own cryptocurrency tax frameworks. The UAE's Federal Tax Authority introduced a 2026 framework requiring businesses to convert digital-currency transactions into UAE dirhams for VAT reporting purposes.
In France, rising crypto kidnapping concerns have been partly attributed to tax-related data security issues. Earlier this year, Telegram founder Pavel Durov alleged that French tax officials were selling personal data to criminal groups, allegedly contributing to crypto kidnappings.
