Every crypto examination I have handled turned on one thing: documents. Not arguments, not tone, not how sympathetic the taxpayer was. Documents. And the IRS asks for documents with one form, Form 4564, the Information Document Request.

If you have just received one, this page explains what it is, what the examiner is allowed to ask for, how to answer without making things worse, and what the IRS can do if you do not answer.

When the IDR shows up

The Internal Revenue Manual tells examiners exactly when to send it. On office examinations, examiners prepare Form 4564 and mail it with the initial contact letter. On field examinations, it generally comes with the appointment confirmation letter. See IRM 4.10.2.10.1.

When a representative schedules the first appointment, the IRM says the examiner must mail a detailed Form 4564 with the confirmation letter listing everything needed at the initial appointment. See IRM 4.10.2.8.1.

So the IDR is usually your first concrete look at what the examiner thinks the case is about.

What the IRS is supposed to ask for

The IRM puts limits on examiners. Requests “should be specific and should avoid requesting more information than is essential to resolve the issues identified,” and examiners “should always carefully consider what data is necessary.” Form 4564 is used to document “all requested information and documents needed to support items being examined.” See IRM 4.10.2.10.1.

In a crypto case, “specific” usually still means a lot. Expect requests along these lines:

  • Complete transaction histories from every exchange and platform for the years under exam.
  • Wallet addresses you control, and records of transfers between your own wallets.
  • Your cost basis computations, including the method you used and the supporting lot detail.
  • Forms 1099-DA, 1099-B, 1099-MISC or 1099-K you received, and your reconciliation to them.
  • Bank statements showing transfers to and from exchanges.
  • Records of crypto received as income: staking, mining, airdrops, or payment for services.

If a request is vague or seems far broader than the issues, ask the examiner to clarify or narrow it in writing. That is a normal, professional request, and the IRM language above is the basis for it.

Do not ignore the first letter

The IRM gives examiners a short fuse. If a taxpayer does not respond to the initial contact letter within 14 calendar days and it was not returned undeliverable, examiners follow no-response procedures and must try to determine why the taxpayer is not responding. See IRM 4.10.2.8.3.

Fourteen days is not a statutory deadline. It is the point where the examiner starts treating you as non-responsive. Call, or have your representative call, before then.

How to answer a crypto IDR

Here is the approach I use, and I would use it whether the case is large or small.

Answer item by item. Number your response to match the IDR. For each item, either produce the documents, explain why they do not exist, or state when they will be produced. A pile of exports with no index invites a second IDR.

Produce what was asked, not everything you have. Respond fully to each request. Volunteering unrelated years, accounts or activities does not earn goodwill; it widens the exam.

Reconcile before you produce. If your exchange data does not match your return, you need to know that before the examiner does. Build the reconciliation first, and decide how to address differences.

Explain reconstruction. If basis was rebuilt from incomplete records, say how. A clear method is far more persuasive than a number with no backup. See rebuilding missing cost basis.

Ask for more time early. If you need more time, ask before the due date and propose a realistic date. Examiners deal with extension requests every day. They do not deal well with silence.

If you do not respond: the enforcement ladder

In examinations by the IRS Large Business and International division, the IRM prescribes a mandatory three-step process for delinquent IDRs: a delinquency notice, a pre-summons letter, and a summons. See IRM 4.46.4.7.3.

Exhibit 4.46.4-2 fills in the timing. The delinquency notice generally carries a response date no more than 10 business days out. If the response is still incomplete, a territory manager issues a pre-summons letter, Letter 5078, generally within 10 business days after the delinquency notice due date, with its own response date generally 10 business days out. After that comes a summons. The IRM adds that if a taxpayer says the information will not be provided without a summons, the IRS should move directly to issuing one.

Small business and individual examinations are not run under that LB&I exhibit, but the destination is the same. The IRS can summon your records under IRC 7602(a). See IRS summonses for your own wallet records.

The examiner may also go around you

If you do not produce records, or the examiner wants to verify what you produced, the IRS can contact third parties such as exchanges and banks. Before it does, IRC 7602(c) requires advance notice to you. In practice that is Letter 3164. See the third-party contact notice.

Records the examiner gets from an exchange directly are records you did not get to explain first. That is a reason to produce, not to stall.

What a clean response package looks like

For a typical individual crypto exam, a response that closes questions instead of opening them usually has five parts.

  • A cover letter that lists each IDR item by number and states what is enclosed for it, what does not exist, and what is still coming.
  • An account inventory: every exchange, wallet and platform used in the exam years, with dates opened and closed.
  • A reconciliation schedule that ties each information return the IRS has, such as Forms 1099-DA, to the lines on your Form 8949.
  • A transfer map showing movements between your own accounts, so the examiner does not treat them as sales or as unexplained deposits.
  • A basis memo explaining your cost basis method and any reconstruction, with the supporting data attached.

That package is more work up front. It is also the difference between a three-month exam and a two-year one.

Keep a copy of exactly what you produced, in the order you produced it, with the date. Months later, when the examiner’s report cites “documents provided,” you will want to know precisely which ones.

Should you answer the IDR yourself?

You can. Many people do in simple cases. But crypto IDRs are where small mistakes compound: a mislabeled transfer becomes a phantom sale, a missing wallet becomes a question about concealment, and an offhand explanation becomes a statement in the examiner’s notes.

A representative with a Form 2848 on file can handle the IDR, the calls and the meetings. That also gives you a buffer between the examiner’s questions and your first instinct to over-explain. The IRS audit process is explained in more depth on getirshelp.com’s IRS audit page.

Watch for penalty signals

Read the IDR for penalty language. Requests about who prepared the return, what information you gave the preparer, and why certain activity was omitted are often about penalties as much as tax. The accuracy-related penalty under IRC 6662 has a reasonable cause defense under IRC 6664(c)(1), and the facts that support it should be developed during the exam, not after. See the crypto accuracy penalty and reasonable cause in crypto cases.

The bottom line

An IDR is not an accusation. It is a request for proof. Give the examiner complete, organized answers to what was asked, on time, and most crypto audits become arithmetic. Ignore it, and the IRS has tools that do not require your cooperation.