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When did crypto become taxable

Taxpayers could owe tax on crypto transactions before 2014. In March 2014, the IRS confirmed in Notice 2014-21 that it treats crypto as property.

We file the missing years, answer IRS letters about crypto and correct a wrong answer to the digital asset question.

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When crypto became taxable and what to do about missed years

  • The IRS has enforced crypto reporting since 2014: a Coinbase summons, letters to more than 10,000 taxpayers in 2019, the Form 1040 question in 2020 and Form 1099-DA for 2025 sales.

  • The IRS has three years after filing to assess a return, six years when the taxpayer left more than 25% of gross income off it, and no limit for unfiled years.

  • We amend or file the missing years and answer IRS crypto letters, including Letter 6173, which carries a reply date.

When did bitcoin become taxable

Bitcoin was taxable before 2014 like any other property sold at a gain, and in Notice 2014-21 the IRS named Bitcoin as its example of convertible virtual currency.

Each time a holder sells, swaps or spends Bitcoin, the holder reports a gain or loss, and our cryptocurrency tax services team works out the basis.

When did crypto start getting taxed: the IRS timeline

IRS crypto tax steps since 2014

  1. Notice 2014-21: the IRS confirms crypto is property

  2. Court enforces the Coinbase summons for 14,355 accounts

  3. IRS sends crypto letters to over 10,000 taxpayers

  4. IRS puts the crypto question on page 1 of Form 1040

  5. Forms 1099-DA for 2025 sales, sent in early 2026

Forgot to report crypto on taxes

The IRS has three years after filing to assess a return. It gets six years when the taxpayer leaves out more than 25% of the gross income reported, and no limit for unfiled years.

  • Amended returns.

    We file Form 1040-X for each year we correct, and report sales of capital assets and their basis on Form 8949 where required.

  • Unfiled years.

    We prepare each missing return, with crypto income and gains reported in full.

  • The digital asset question.

    We correct a wrong No on that question when we amend the year.

The IRS can add a 20% accuracy-related penalty to tax underpaid on income left off a return.

Holders who may have acted willfully should have a tax lawyer assess the IRS Criminal Investigation Voluntary Disclosure Practice first.

Digital asset question on the tax return

The IRS asks the digital asset question on Form 1040 and on business, trust and gift tax returns, and expects a Yes or No each year:

  • Yes.

    The taxpayer received crypto as pay or a reward, or sold, swapped or otherwise disposed of it.

  • No.

    The taxpayer only held crypto, bought it with dollars, or moved it between their own wallets without paying a fee in crypto.

We answer it from the exchange records and check it against the gains and income on the return.

IRS letter 6174, 6174-A and 6173 for crypto

The IRS asks for a reply to Letter 6173 by the date printed on it, even when the return was right. It asks for no reply to Letters 6174 and 6174-A, which it sends when its records show virtual currency accounts, and it still expects an amended return where the original was wrong. We handle an IRS crypto letter the same way, whichever version the IRS sends:

  • Check the years.

    We compare the exchange records with what the taxpayer reported on each return.

  • Fix the returns.

    We amend any year where the taxpayer left crypto out, before the IRS adjusts it.

  • Reply on time.

    Our IRS audit representation team answers, by the IRS deadline, any letter where the IRS asks for a response.

Taxpayers who reported their crypto and still got a letter send us the returns, and we document the match. A taxpayer who ignores Letter 6173, even with a correct return, can expect the IRS to examine the years listed on it. The IRS allows a 30 day extension if the request goes in by the printed date.

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What unreported crypto work costs

We set the quote in writing from:

  • Years. We price each amended or late year separately.
  • Transaction volume. We charge more when we match trades by hand instead of from a tracking report.
  • IRS letters. We quote representation separately when the IRS asks for a reply.

One late year with a clean exchange report is the lightest case. These are the factors, not a quote.

Talk to a CPA about past crypto years

Bring the exchange exports, and we show which years we need to amend or file before the IRS asks about them.

Confidential. Clients can book the call without exchange files.