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Last reviewed: May 30, 2026 · NJ CPA License #20CC04711400
If the IRS sends a crypto notice - a CP2000 proposing extra tax, a Letter 6173/6174, or a phantom-gain bill from a Form 1099-DA that reported gross proceeds but no cost basis - you generally have about 30 days to respond with a reconciliation rather than simply paying. Responding correctly can eliminate or sharply reduce the proposed tax and penalties.
For 2025 transactions, crypto brokers file Form 1099-DA reporting your gross proceeds - but for 2025 they are not required to report cost basis (basis reporting begins for covered assets acquired on or after Jan 1, 2026). The matching system (AUR) assumes a zero basis if nothing offsets it and can propose tax on the entire sale amount - a “phantom gain.” The fix is to reconcile proceeds against your real basis on Form 8949 / Schedule D. See our 1099-DA cost-basis review.
| Step (tax year 2025) | Date |
|---|---|
| Recipient copy furnished | Feb 17, 2026 |
| Paper filing to IRS | ~Mar 2, 2026 (Feb 28 is a Saturday) (indicative) |
| E-filing to IRS | Mar 31, 2026 (indicative) |
Only the Feb 17, 2026 recipient date is independently corroborated; confirm the IRS filing dates against the official Instructions for Form 1099-DA.
No response and the CP2000 becomes a Statutory Notice of Deficiency (90-day letter), after which you must petition Tax Court.
Full transaction history, reconstructed basis, actual gain/loss on Form 8949 / Schedule D.
Agree/disagree, attaching the corrected 8949/Schedule D as your explanation. In most cases no separate Form 1040-X is needed - the response itself is the correction. File a 1040-X only if the IRS instructions for your situation call for it, and label it per the notice.
A correct reconciliation often reduces or eliminates the §6662 accuracy-related penalty - 20% of the underpayment on either the negligence or substantial-understatement prong.
Confirm the IRS adjusts the proposed assessment.
Worked example. A 1099-DA reports $120,000 in proceeds with no basis. The IRS assumes $0 basis and proposes tax on the full $120,000. Your real basis was $95,000, so your actual gain is only $25,000. Responding with a corrected Form 8949 turns a proposed tax on $120,000 into tax on $25,000 - and typically knocks out the related penalty. Estimate your own numbers with the 1099-DA basis-gap calculator.
Recent changes to know: the IRS removed the willfulness self-certification checkbox from Form 14457 in the July 2025 revision, and on Dec 22, 2025 opened a 90-day comment period on proposed VDP updates (6-year disclosure period, 3-month pay-in-full, closing agreement) that closed March 22, 2026 - final terms are pending as of this writing. We assess which path fits before anything is filed - a quiet amendment in the wrong situation can increase exposure.
Send it over and we’ll tell you what it really means and what it should cost.
Your broker likely filed a Form 1099-DA reporting gross proceeds without cost basis. The IRS matching system assumes a zero basis and proposes tax on the full sale amount. Reconciling against your actual basis on Form 8949 usually reduces the number dramatically.
About 30 days from the notice date (60 if outside the US). If you ignore it, it becomes a Statutory Notice of Deficiency (90-day letter), after which you must petition Tax Court to dispute.
No - it is an automated-underreporter proposal from a data mismatch, not an examination or a final bill. You can dispute it with corrected figures.
Sometimes. First-Time Abatement may apply with a clean prior 3 years; reasonable-cause relief may apply if the failure was not willful. Penalties tied to the understatement also fall when the corrected tax is lower.
Usually you do not need to - responding on the CP2000 form with a corrected Form 8949 / Schedule D attached is itself the correction. File a 1040-X only if the IRS instructions for your situation call for it (for example, additional items beyond what the notice addresses), and label it per the notice guidance. When in doubt, follow the instructions on your specific notice.
It depends on willfulness. Form 1040-X fits many non-willful situations; the IRS Voluntary Disclosure Practice (Form 14457) is for potential willful exposure. Get advice before filing - and note the VDP framework is under proposed revision (a 90-day comment period on proposed changes closed March 22, 2026, with final terms pending).
"Soft" digital-asset letters. Letter 6173 requires a response; 6174 and 6174-A are informational warnings. All are worth taking seriously.
Tax advice disclaimer: This material is for general educational information only and is not legal, tax, or accounting advice for your specific facts. A CPA-client relationship is formed only through a signed engagement letter.