The National Taxpayer Advocate Proposed 4 Crypto Tax Fixes. Here Is What They Missed

By Clinton Donnelly, LLM, EA | CEO & Founder, CryptoTaxAudit

The National Taxpayer Advocate publishes a list of the ten most serious problems facing American taxpayers. Digital assets made the list. The finding was that the IRS needs to do more to help crypto investors report correctly.

Erin Collins holds the post. She made four recommendations. A correction program for past mistakes. Clearer guidance. Defined eligibility and procedures. Better tools for rebuilding lost transaction records.

The recommendations describe the problem accurately. The proposed fixes are a different matter. Two of them ask the IRS to build things that already exist. One misreads why crypto reporting is hard in the first place.

Key Takeaways

• The National Taxpayer Advocate is independent of IRS operations: Erin Collins leads the Taxpayer Advocate Service, reports problems directly to Congress, and can push agenda items on behalf of taxpayers.
• Digital assets ranked among the ten most serious problems: The report found that crypto investors face real difficulty complying, and that the IRS has not done enough to close the gap.
• Recommendation one asks for a digital asset correction program: Taxpayers who discover a crypto reporting error a year or two later have no low-risk lane back to compliance. Coming forward can route them through channels associated with criminal investigation.
• The IRS has resisted a crypto-only fix for a structural reason: A correction program limited to digital assets would trigger the same demand from micro captive insurance and conservation easement participants.
• Letters 6173, 6174, and 6174-A already deliver written crypto guidance: The IRS has mailed these letters to digital asset owners for years. Each one summarizes how crypto is reported. Most recipients take no action.
• Record reconstruction tools already exist: They are called capital gain calculation software. The problemis not the tooling. The problemis missing, and there are misaligned records across wallets and exchanges.

Who Is the National Taxpayer Advocate?

The National Taxpayer Advocate is an official whose job is to stand outside normal IRS operations and help taxpayers with problems the agency creates. Erin Collins currently holds the position. She leads the Taxpayer Advocate Service.

The role carries real reach. The Advocate makes recommendations to Congress, including to the committees that write tax law. She also publishes an annual list of the most serious problems facing taxpayers.

That list matters because it sets agenda items. It is a formal signal to Congress and to IRS leadership about where taxpayers are being failed. Digital asset reporting earned a spot on it.

One limit is worth stating plainly. The Advocate recommends. She does not write regulations, issue rulings, or bind the IRS to anything. Every item on the list is a proposal, not a rule change.

Fix One: A Correction Program for Crypto Mistakes

The first recommendation is to develop a digital asset corrective program so taxpayers can fix mistakes and come into compliance. The problem it targets is real and common.

People often realize a year or two after filing that they reported their crypto wrong. The trades were missed. The cost basis was guessed. A wallet was left out entirely. They want to fix it.

Right now there is no comfortable lane back. Because of how the IRS has structured its disclosure channels, a taxpayer volunteering a past crypto error can find that step treated as an admission tied to potential criminal exposure.

That is the gap the Advocate is pointing at. Coming clean should carry less risk than staying quiet. Today it does not always feel that way to the taxpayer sitting on a bad return.

Why Has the IRS Resisted a Crypto Correction Program?

The IRS has resisted a crypto-specific correction program because it cannot single out one group of taxpayers for favorable treatment. Open a clean up lane for digital assets and every other contested area lines up behind it.

Micro captive insurance participants would ask for the same deal. So would conservation easement participants. Both groups have far larger dollar amounts in dispute and far more organized representation.

This is the tension the agency keeps running into. A digital asset program is easy to describe and hard to contain. That is why the idea has stalled for years, not because nobody has raised it.

CryptoTaxAudit has pushed for exactly this kind of program before, including through a dedicated website campaign encouraging the IRS to create one. The agency showed no interest. The Advocate is now raising a request that practitioners have made for years.

Fix Two: Clear and Comprehensive Guidance

The second recommendation is to provide clear and comprehensive guidance so that taxpayers with digital assets are informed and can comply. On its face this is reasonable. Crypto guidance has arrived in pieces over many years.

The recommendation runs into a problem, though. The IRS has already been doing a version of this by direct mail for the last several years.

This is where the recommendation stops matching the record. Guidance is not absent. It has been landing in mailboxes.

The IRS Already Mails Crypto Guidance Letters

The IRS has been mailing educational letters directly to digital asset owners, including Letters 6173, 6174, and 6174-A. Each runs a couple of pages and summarizes how digital assets are reported on a tax return.

The letters cover the core scenarios. Capital gains on sales and trades. Being paid in crypto. Paying others in crypto. Staking and other rewards. Mining income.

The summary is short by design. It tells the recipient to check the tax return and correct it if the reporting was wrong. That is guidance, delivered personally, to the exact population that needs it.

Here is the part the recommendation overlooks. Most recipients do nothing. The information reached them. They were informed. The behavior did not change. That is a different problem than a guidance shortage, and more guidance will not solve it.

Fix Three: Define Program Eligibility and Procedures

The third recommendation is to define program eligibility and procedures so taxpayers can understand them and participate. This one assumes the main obstacle facing crypto taxpayers is procedural clarity.

It is not. The obstacle is data. A taxpayer with six years of activity across four exchanges, two of which no longer exist, and a dozen self-custody wallets does not have a paperwork question. They have a reconstruction problem.

Publishing an eligibility checklist does nothing for that taxpayer. They still cannot produce the transaction history the checklist would require them to submit.

This is the firm's assessment, not a settled position. The recommendation reflects the distance from the day-to-day work of rebuilding a crypto trading history. The complexity sits upstream of the procedures.

Fix Four: Improve Tools for Record Reconstruction

The fourth recommendation is to improve tools for record reconstruction so taxpayers with digital assets can accurately report and pay the correct amount of tax. The report puts it this way: "Support the development of tools, safe harbors, or guidance to help taxpayers reconstruct transaction histories across multiple platforms and wallets."

This is the strongest of the four because it identifies the actual bottleneck. Multiple platforms. Multiple wallets. No unified record.

The safe harbor idea deserves attention in particular. A safe harbor would give taxpayers a defensible method for handling gaps in their records instead of leaving each one to invent an approach and hope it survives review.

Gain Calculation Software Already Does This Job

The tools the Advocate is asking for already exist. Capital gain calculation software pulls transaction histories across exchanges and wallets, matches disposals to acquisitions, and produces the figures a return requires. That entire category of product was built for this exact task.

The work is still difficult. It is still frustrating. Anyone who has run a multi year, multi wallet reconstruction knows the software gets you a long way and then stops.

It stops because of the records, not the code. Exchanges close and take their export files with them. Transfers between wallets arrive with no cost basis attached. Timestamps and ledgers disagree. Records are missing outright.

Automation cannot resolve those gaps. Past a certain point the work requires a human deciding what a transaction was and defending that decision. Better tools do not eliminate that step.

What Should Crypto Investors Do Instead?

Keep the trading environment simple. Fewer exchanges, fewer wallets, and fewer chains produce a cleaner record and a cheaper calculation at year end. Complexity is the cost driver.

If the trading environment is not simple, budget for the calculation. Treat gain calculation as a planned annual expense, the same as any other cost of holding the position.

Most taxpayers get this backwards. They treat gain calculation as an optional purchase made in a hurry during tax season, when both the pricing and the record gaps are at their worst.

Waiting on the Taxpayer Advocate's recommendations is not a plan. They are proposals to Congress and to the IRS. Nothing in them changes what is due on the next return. Investors who want help with a multi platform history can start with full service crypto gain calculation.

Frequently Asked Questions About the Taxpayer Advocate Crypto Recommendations

Q: Who is Erin Collins and does she work for the IRS?

A: Erin Collins is the National Taxpayer Advocate. She leads the Taxpayer Advocate Service, which operates independently of normal IRS enforcement and collection functions. Her job is to identify problems the agency creates for taxpayers and report them to Congress.

Q: Do the Taxpayer Advocate's recommendations change my crypto tax obligations?

A: No. The recommendations are proposals to Congress and to IRS leadership. They are not law, regulation, or IRS guidance. Reporting requirements on your next return are unchanged.

Q: I just realized I reported my crypto wrong two years ago. What do I do first?

A: Rebuild the transaction history for the years in question before deciding anything. You cannot evaluate the size of the error, or the correct fix, without knowing the actual numbers. Because voluntary disclosure can carry criminal exposure considerations, get professional advice before contacting the IRS directly.

Q: I got a Letter 6174-A about my crypto. Does that mean I am under audit?

A: No. Letters 6173, 6174, and 6174-A are educational letters, not audit notices. They summarize how digital assets are reported and instruct the recipient to review the return. Ignoring one does not make the underlying reporting problem disappear.

Q: Should I wait for the IRS to create a crypto correction program before fixing my returns?

A: The IRS has resisted a digital asset specific correction program for years, largely because it could not limit the same treatment to crypto holders alone. There is no announced program and no timeline. Decisions about past returns should be made on the current rules.

Q: Why can't gain calculation software just do all of this automatically?

A: Software handles the matching and the math well. It cannot invent records that were never created or recovered. Closed exchanges, transfers with no cost basis attached, and conflicting ledgers all require human judgment and documentation.

Q: Need help rebuilding a crypto trading history across multiple exchanges and wallets?

A: CryptoTaxAudit performs multi-year, multi-platform gain calculations and defends the results under IRS examination. Start with a consultation or review full service gain calculation. Ongoing IRS account monitoring is available through Tax Shield membership.

About CryptoTaxAudit: Founded in 2015 by Clinton Donnelly (LLM, EA), CryptoTaxAudit specializes exclusively in cryptocurrency tax preparation and IRS audit defense. Clinton holds an advanced law degree in international financial planning, a federal Enrolled Agent status, and the Certified Cryptoasset Anti-Financial Crime Specialist credential from ACAMS. The firm has filed more than 5,000 crypto tax returns, defended clients in over 50 IRS audits, and represented five traders in U.S. Tax Court. CryptoTaxAudit serves clients across 71 countries and has spent a decade reconstructing multi-platform trading histories for taxpayers the IRS has questioned.

Related article: IRS Letters 6173, 6174, 6174-A Explained: Essential Info for Crypto Traders and Investors