I hear this more than you would think: “I got a letter about my crypto a few years ago. I didn’t do anything. Is that bad?”

It depends on which letter, what your returns looked like, and what has happened since. Ignoring a letter is not a crime. But the IRS keeps records of what it mailed you, and time works for the IRS in some ways and against it in others. Here is how to think about it.

Step one: which letter did you ignore?

Letters 6174 and 6174-A both say you do not need to respond. If you ignored one of those, you did not miss a deadline. You may have missed a chance, but that is different.

Letter 6173 is different. It has a respond-by date and asks you to file, amend, or send a signed statement. The letter says plainly what happens if the IRS does not hear from you: “We may refer your tax account for examination. Please be aware that underpayments of tax are subject to interest and penalties.”

If you are not sure which letter you got, see the comparison of all three.

What “refer for examination” means

An examination is an audit. A revenue agent or tax compliance officer opens your return and asks for documentation, usually through Form 4564, the Information Document Request. In a crypto case, that means exchange statements, wallet records and your basis calculations. See what a crypto IDR asks for.

The examiner has tools you should understand before the first meeting. The IRS can contact third parties, such as exchanges, after giving you advance notice under IRC 7602(c). It can issue a summons for your records under IRC 7602(a). And if the case develops, it can propose penalties.

An examination that starts after an ignored letter starts from a worse place. The examiner can see the letter in the history, and so can the manager who approves penalties.

The penalty picture gets worse with notice

Penalties are where an ignored letter costs you the most.

The accuracy-related penalty under IRC 6662 adds 20 percent of the underpayment attributable to negligence or to a substantial understatement. For individuals, a substantial understatement is one that exceeds the greater of 10 percent of the correct tax or $5,000. See IRC 6662(d)(1)(A). The main defense is reasonable cause and good faith under IRC 6664(c)(1).

Reasonable cause is about what you knew and what you did. The IRS fraud handbook tells IRS personnel to consider the agency’s public notices about digital asset reporting, including the 2019 letter campaign, when evaluating whether a taxpayer meets the reasonable cause exception. See IRM 25.1.2.11.2. A letter mailed to you is personal notice. After it, “I didn’t know crypto was taxable” is hard to sell.

The civil fraud penalty under IRC 6663 is 75 percent of the portion of an underpayment attributable to fraud. The IRS bears the burden of proving fraud under IRC 7454(a), and in Tax Court that burden is clear and convincing evidence under Tax Court Rule 142(b). Ignoring a letter is not fraud. But the IRS fraud handbook lists, as an indicator in digital asset cases, intentional failure to report a substantial portion of transactions over multiple years “despite knowledge of a reporting requirement.” See IRM 25.1.2.11.1. A letter is evidence of knowledge.

Has the statute of limitations run?

Sometimes the passage of time helps you. The general rule in IRC 6501(a) is that tax must be assessed within three years after the return was filed. If you filed an accurate-enough return for an early year and three years have passed, that year may be closed.

But crypto cases run into the exceptions:

  • Substantial omission. If you left out more than 25 percent of the gross income stated on the return, the period is six years under IRC 6501(e)(1)(A). An overstatement of basis counts as an omission under IRC 6501(e)(1)(B)(ii).
  • No return. If you never filed for a year, IRC 6501(c)(3) lets the IRS assess at any time.
  • Fraud. A false or fraudulent return with intent to evade tax can be assessed at any time under IRC 6501(c)(1).

So the letter you ignored in 2019 may relate to years that are now closed, or to years that never closed at all. Which one applies is the first thing to figure out. Full walkthrough in how far back the IRS can audit crypto.

Where you stand now

Here is the practical sorting I do with clients who ignored a letter.

  • Returns were right; letter was a 6174 or 6174-A. Nothing to do except keep records together.
  • Returns were right; letter was a 6173. Consider sending a late statement of facts anyway, so the file reflects your position. See how to answer with a statement of facts.
  • Returns were wrong; years still open. Correct them now. A voluntary amended return before an examination starts is a far better posture than an adjustment proposed by an examiner.
  • Returns were wrong; years may be closed. Confirm the limitations analysis before you file anything for a closed year.
  • Returns were never filed. No limitations period is running in your favor. File, and get advice on how.
  • Large amounts, or anything that looks like concealment. Stop and get a lawyer. How you come forward matters as much as whether you do.

Will the IRS come back?

I cannot tell you that, and neither can anyone else who has not seen your IRS transcripts. What I can tell you is that the IRS has more crypto data now than when those letters went out. Brokers began filing Form 1099-DA for digital asset sales on or after January 1, 2025, under Treas. Reg. 1.6045-1. See the 1099-DA effective dates. Courts have authorized John Doe summonses for exchange records. The letters were an early step.

The safest assumption is that your old letter is still in the file, and that the next contact, if there is one, will come from someone with authority to propose tax and penalties.

There is also a newer kind of mismatch to watch for. A broker’s 1099-DA shows gross proceeds; for many assets, especially ones you transferred in from another wallet, it will not show your basis. If your return does not line up with those forms, the automated matching program can propose tax on the full proceeds. That proposal is not an audit and it is not one of the 2019 letters, but it lands on the same desk: yours. See transferred-in crypto and zero-basis 1099-DA forms.

Getting back on offense

You cannot un-ignore a letter. You can make the record show what you did once you took it seriously.

Pull your IRS account and wage and income transcripts so you know what the IRS has. Rebuild your crypto history year by year. Decide, with advice if the numbers are large, which years to correct and how. Then act before the IRS does.

One more thing to settle early: whether you want to talk to the IRS yourself. If an examiner calls, you can have a representative handle the contact once a Form 2848 is on file. That keeps a nervous conversation from turning into a recorded admission about what you knew and when.

And do not start shuffling assets in response to a letter. The IRS fraud handbook lists, among indicators of fraud in digital asset cases, the “conversion of physical assets to digital assets in anticipation of, or in response to, IRS actions,” and chain hopping to obscure the source and use of assets. See IRM 25.1.2.11.1. Rearranging holdings after a letter does not make the letter go away. It makes the next file look worse.

The longer you wait, the more they take. That is not a slogan. It is how interest and penalties accrue. If you want help sorting the years, the IRS audit page on getirshelp.com explains how the firm approaches examinations.