Crypto Tax Question — IRS audit letter for crypto

Looking for advice on a legal issue. Here's what happened.

IRS audit letter for crypto. I've been dealing with this for about 10 weeks now and the situation isn't improving.

I have already done some research online but got conflicting advice.

Should I hire a lawyer for this or try to handle it myself?

I've seen this play out several times in my field.

The biggest mistake people make in this situation is hiring an attorney to send the initial letter. I'd recommend being patient with the process instead.

I work in this industry and unfortunately this is very common. The good news is that when people actually push back with legal representation, companies usually settle.

This happened to me too. Have you tried filing a complaint with the relevant agency? In my case they investigated and it got resolved without needing a lawyer.

I work in this industry and unfortunately this is very common. The good news is that when people actually push back with legal representation, companies usually settle.

I work in this industry and unfortunately this is very common. The good news is that when people actually push back with legal representation, companies usually settle.

I work in this industry and unfortunately this is very common. The good news is that when people actually push back with legal representation, companies usually settle.

This happened to me too. Have you tried filing a complaint with the relevant agency? In my case they investigated and it got resolved without needing a lawyer.

Attorney here. Here's my take on the legal issues.

The legal framework here involves both federal and state law. At the federal level, the relevant statute. Your state may provide additional protections.

I'd recommend documenting everything in writing from this point forward. Keep copies of all communications.

NAL, but from what I've read, you should document everything. That said, definitely get a lawyer to look at the specifics.

Have you tried reaching out to your state's attorney general? They sometimes have free resources or mediation services.

I've dealt with this before.

What worked for me was escalating to a supervisor/manager. It took 1-3 months but was worth it.

I went through almost the exact same thing.

In my case, it took about 3-6 months to resolve. The key was having everything documented.

CPA and tax attorney here. I handle IRS crypto audits almost weekly at this point, and I want to give some concrete guidance because there is a lot of misinformation floating around in this thread.

First, the IRS has dramatically ramped up crypto enforcement since the Infrastructure Investment and Jobs Act of 2021 (Public Law 117-58) expanded broker reporting requirements. Starting with the 2025 tax year, centralized exchanges like Coinbase, Kraken, and Gemini are now required to issue 1099-DA forms reporting your cost basis and proceeds. This means the IRS already has your transaction data -- do not assume they are guessing.

Here is what you should do if you received a CP2000 or similar notice:

• Do NOT ignore the letter. You typically have 30 days to respond, and failure to respond results in an automatic assessment of the proposed tax, plus penalties and interest.
• Gather all exchange records, wallet transaction histories, and any records of cost basis. If you used DeFi protocols, pull on-chain data from Etherscan or similar block explorers.
• Consider using crypto tax software (Koinly, CoinTracker, TokenTax) to reconstruct your cost basis. The IRS will accept FIFO, LIFO, or specific identification methods under IRC Section 1012.
• If your unreported gains are under 50K, you may be able to resolve this through correspondence without a full audit. Respond to the notice with a complete Schedule D and Form 8949.
• If the amount is significant (over 50K in unreported gains), hire a tax attorney -- not just a CPA. Attorney-client privilege protects your communications; accountant-client privilege is much weaker under federal law.

One critical point: if you had crypto on foreign exchanges (Binance international, KuCoin, etc.) and the aggregate value exceeded 10K at any point during the year, you were required to file an FBAR (FinCEN Form 114). The penalties for willful FBAR violations are up to 100K or 50% of the account balance per violation. This is where people get into serious trouble. The IRS Voluntary Disclosure Program can help if you come forward before they come to you.

The statute of limitations for crypto tax issues is generally 3 years from filing (IRC Section 6501), but extends to 6 years if you omitted more than 25% of gross income, and has no limit for fraud. Get ahead of this now rather than hoping it goes away.