Some people with crypto gains do not file badly. They do not file at all. Maybe it started as one year of chaos after a big run, and turned into several. Maybe someone told them the IRS could not see crypto.

Non-filing has its own penalty structure, and when the IRS believes the failure to file was fraudulent, a much harsher version kicks in. Here is how it works.

The ordinary failure to file addition

IRC 6651(a)(1) adds to the tax required to be shown on a return 5 percent if the failure to file lasts not more than one month, plus another 5 percent for each additional month or fraction of a month, up to 25 percent in total, unless the failure is due to reasonable cause and not willful neglect.

For an income tax return more than 60 days late, the statute sets a minimum addition: the lesser of a dollar amount ($435 in the statute, adjusted for inflation for returns required to be filed after 2020, under IRC 6651(j)) or 100 percent of the tax required to be shown.

Under IRC 6651(b)(1), the addition is computed on the net amount due, after timely payments and credits.

The fraudulent version: IRC 6651(f)

IRC 6651(f) says that if any failure to file is fraudulent, paragraph (a)(1) is applied by substituting 15 percent for 5 percent each place it appears, and 75 percent for 25 percent.

So the monthly rate triples, and the cap triples. A non-filing that runs five months or more can reach the full 75 percent of the tax required to be shown.

Compare that to the civil fraud penalty under IRC 6663, which is also 75 percent but applies to an underpayment on a filed return. Section 6651(f) is the non-filer’s equivalent. See the civil fraud penalty.

The math, side by side

Take a crypto trader who owes $60,000 of tax for a year, made no payments, and files nothing for a year and a half.

Under ordinary 6651(a)(1), the failure to file addition runs 5 percent a month and caps at 25 percent after five months: $15,000. Under 6651(f), if the failure was fraudulent, it runs 15 percent a month and caps at 75 percent, also reached after five months: $45,000.

That $30,000 difference is before the failure to pay addition, before interest, and before any argument about whether the tax figure itself is right. The figures are illustrations of the statutory percentages, not a computation for any real case, and the coordination rule in IRC 6651(c)(1) can reduce the failure to file amount for months in which the failure to pay addition also applies. See how crypto penalties combine.

Late is not the same as never

A return filed late still stops the failure to file addition from growing, still starts the assessment period running under IRC 6501(a), and still shows effort. A return never filed does none of those things.

The reasonable cause exception in IRC 6651(a)(1) applies when a failure is due to reasonable cause and not due to willful neglect. A taxpayer who could not get records from a collapsed exchange for a period, and filed promptly once records were available, has a story to tell. A taxpayer who decided the IRS would never notice does not. See reasonable cause for crypto penalties.

Who has to prove it

Fraud is fraud. IRC 7454(a) puts the burden on the IRS in any proceeding involving whether the petitioner has been guilty of fraud with intent to evade tax, and Tax Court Rule 142(b) requires clear and convincing evidence.

The IRS has to show more than that you did not file. It has to show the failure was intended to evade tax. In crypto cases, it looks for the indicators in IRM 25.1.2.11.1: multi-year non-reporting despite knowledge of the requirement, concealment techniques, false statements, and the like. See the IRS crypto fraud indicators.

Ignoring an IRS letter, such as Letter 6173, which says the IRS has no record of a return or schedule reporting your virtual currency, does not by itself prove fraud. But it is evidence of knowledge, and knowledge is what turns non-filing from neglect into something worse. See the three crypto letters.

No supervisory approval required

Here is a procedural difference that surprises people. IRC 6751(b)(2)(A) exempts “any addition to tax under section 6651” from the written supervisory approval requirement. That includes the fraudulent failure to file increase under 6651(f).

So the approval defense that can defeat a 6662 or 6663 penalty is not available against 6651(f). Your defenses are the merits: the IRS’s burden to prove fraud, and reasonable cause. See supervisory approval rules.

What happens when the IRS files for you

If you do not file, the IRS can prepare a return for you under IRC 6020(b). IRC 6651(g) says a return made by the IRS under 6020(b) is disregarded for determining the failure to file addition under (a)(1), but treated as your return for the failure to pay additions under (a)(2) and (a)(3).

And IRC 6664(b) says the accuracy and fraud penalties in 6662 and 6663 apply only where a return was filed, other than a 6020(b) return. That is why, in true non-filer cases, the fight is over 6651, not 6662 or 6663. See how crypto penalties combine.

An IRS-prepared return built from Forms 1099-DA may show proceeds with no basis. That is another reason to file your own return with your actual basis, even late.

No statute of limitations

IRC 6501(c)(3) says that in the case of failure to file a return, the tax may be assessed at any time. For a non-filer, there is no three-year or six-year period to wait out. See how far back the IRS can audit crypto.

Filing starts the clock. Not filing keeps the door open indefinitely.

That is true even if the IRS has third-party data about you, such as Forms 1099-DA for sales on or after January 1, 2025. Under IRC 6501(a), the “return” that starts the period is your return, not an information return someone else filed about you.

There is a human side to this, too. People who have not filed for years usually stopped because the problem felt too big, not because they planned to cheat. The longer it goes, the bigger it feels. In my experience, the first year is the hardest to file and the last one is easy. The reality is usually much more manageable than the nightmare in your head.

What to do if you have unfiled crypto years

The order matters.

  • Get the facts. Pull your IRS transcripts to see whether the IRS has filed substitute returns or opened anything.
  • Reconstruct. Build each year’s crypto activity and basis from exchange data, wallets and bank records.
  • Assess the fraud risk honestly. If the non-filing was driven by concealment, or if any of the IRM fraud indicators describe your conduct, the filing strategy is a legal question. Get a lawyer before you file anything.
  • File. In most cases, filing accurate returns, with real basis, before the IRS acts is the strongest position available. It shows effort, which is the core of reasonable cause, and it ends the unlimited assessment period for those years.
  • Pay what you can, or set up a plan. Filing without paying still stops the failure to file addition from growing. And for a timely filed return, IRC 6651(h) reduces the failure to pay rate while an installment agreement is in effect, so getting current on filing first matters for future years.

If you are dealing with years of unfiled returns more broadly, the unfiled returns page on getirshelp.com explains how the firm approaches them.