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As crypto prices see a new rebound with Bitcoin (BTC) leading the pack, US investors are not only anticipating significant returns on BTC and other digital assets but also facing increased scrutiny from the Internal Revenue Service (IRS). 

Recent reports indicate that the Internal Revenue Service has dispatched a wave of warning letters to crypto investors, raising alarms about the accuracy of the information they provided on their tax returns.

Crypto Tax Inquiries Skyrocket

In the past two months, the number of these warning letters has spiked, signaling a renewed focus on digital asset reporting. Crypto tax experts have noted that this uptick is markedly higher than in previous years. 

David Kemmerer, co-founder and CEO of CoinLedger, reported a dramatic increase in support inquiries related to IRS communications. From May to June, conversations on CoinLedger about “IRS letters” surged to nearly 800, a ninefold increase compared to the same timeframe in 2024.

Kemmerer explained, “Thousands of investors are getting these letters. Naturally, when that happens, we see a flood of customers coming to us asking, ‘What do I do?’” 

This sentiment is echoed by two crypto tax attorneys, Jordan Bass and Andrew Gordon, who have also observed a noticeable rise in inquiries regarding these IRS notifications. 

Bass mentioned that his firm received inquiries from at least ten recipients of the letters in the last two months, a significant increase from the previous year when no inquiries were reported.

IRS Warning Letters

The IRS has a history of intensifying its efforts to ensure compliance among cryptocurrency investors. Following the agency’s acquisition of thousands of customer records from Coinbase in 2017, it implemented a series of “voluntary compliance” letters aimed at encouraging accurate reporting among investors. 

The latest notices inform recipients that the Internal Revenue Service possesses information indicating they hold “one or more accounts containing virtual currency.” 

While some letters advise recipients to review their reporting for accuracy, others require a response, either through amended returns or explanations justifying their reported transactions.

Interestingly, Gordon noted a potential commonality among recent recipients of the letters, many of whom had accounts on the Seychelles-based crypto exchange Poloniex, raising questions about the data the IRS may have accessed to trigger these communications.

Kemmerer speculated that the increased outreach from the IRS typically follows the agency acquiring new data, suggesting that the notices might be part of broader enforcement efforts. “I’m sure there are just people randomly getting selected, and the lucky ones get these scary letters,” he said.

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Scammers are mailing physical letters to the owners of Ledger crypto hardware wallets asking them to validate their private seed phrases in a bid to access the wallets to clean them out.

In an April 29 X post, tech commentator Jacob Canfield shared a scam letter sent to his home via post that appeared to be from Ledger claiming he needed to immediately perform a “critical security update” on his device. 

The letter, which uses Ledger’s logo, business address, and a reference number to feign legitimacy, asks to scan a QR code and enter the wallet’s private recovery phrase under the guise of validating the device.

The letter threatens that “failure to complete this mandatory validation process may result in restricted access to your wallet and funds.”

A seed phrase, or recovery phrase, is a string of up to 24 words that unlocks access to a crypto wallet. A scammer with the phrase can access and control the associated wallet to transfer its holdings elsewhere.

Earlier this month, the X account of a crypto hardware wallet reseller said it had also received multiple reports of Ledger users receiving a similar letter.

In response to Canfield’s post, Ledger said the letter is a scam and cautioned its device users to stay vigilant against phishing attempts.

Related: Ledger wallet user reports 10 BTC loss — Community blames phishing

“Ledger will never call, DM [direct message], or ask for your 24-word recovery phrase. If someone does, it’s a scam,” it added.

“Please don’t engage with accounts claiming to be Ledger employees or anyone offering to help recover funds.”

Unclear whether connected to the Ledger’s data leak

Canfield suggested that scammers were sending letters to Ledger customers whose data was leaked nearly five years ago.

In July 2020, a hacker breached Ledger’s database and dumped the personal information of more than 270,000 of its customers online, which included names, phone numbers and home addresses

The following year, several Ledger users claimed to have been mailed fake Ledger devices that were tampered with and designed to install malware upon use, Bleeping Computer reported at the time.

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