For privacy and confidentiality reasons, we do not disclose client names. The following case study reflects a real scenario handled by our team.

Client Profile

Type: Individual Investor

Industry: Technology / Cryptocurrency Trading

Situation Summary: The client actively traded cryptocurrency across multiple exchanges between 2019 and 2023 but failed to accurately report transactions, gains, and losses on their tax returns.

The Challenge

The client received IRS Notice 6173, indicating potential non-compliance with virtual currency reporting requirements. The notice required a response confirming accurate reporting or amending prior returns.

The client had hundreds of transactions across multiple platforms, including exchanges and decentralized wallets, making manual reconciliation complex. There were also missing cost basis records for certain assets.

Potential exposure included underreported capital gains exceeding $150,000, along with penalties and interest. The client was concerned about audit escalation and possible classification of non-compliance.

Additionally, prior tax filings did not include Form 8949 or properly reconcile gains and losses, increasing audit risk.

Our Approach

We began by securing Form 2848 and reviewing the client’s IRS transcripts and prior filings. We then gathered all available transaction data from exchanges, wallets, and third-party aggregators.

Our team used specialized crypto tax software to consolidate and normalize transaction data, reconstructing cost basis using FIFO and specific identification methods where applicable.

We prepared amended tax returns (Form 1040-X) for affected years, including accurate reporting on Form 8949 and Schedule D. We ensured alignment with IRS guidance on virtual currency transactions.

We drafted a formal response to IRS Notice 6173, outlining corrective actions taken and demonstrating the client’s intent to comply. We also evaluated potential penalty exposure and structured the submission to support reasonable cause.

We advised the client on implementing ongoing tracking systems and compliance practices for future crypto activity.

The Resolution

Within approximately 4–6 months, all amended returns were accepted, and the IRS acknowledged the client’s corrective actions. The accurate reporting reduced uncertainty and aligned the client’s filings with regulatory expectations.

The client avoided further escalation into a full audit, and no fraud penalties were assessed. While some additional tax was due, the structured approach minimized penalties and ensured compliance.

The client established a compliant reporting framework for future transactions, significantly reducing ongoing risk.

Key Takeaways

• Cryptocurrency transactions must be accurately tracked and reported across all platforms.

• Early correction through amended returns can reduce audit exposure.

• IRS notices related to crypto should be addressed promptly and professionally.

• Proper tools and expertise are essential in handling high-volume digital asset transactions.