The Internal Revenue Service has begun sending letters to taxpayers who sold virtual currencies and failed to report the sales on their income tax returns.

The IRS has announced that more than 10,000 taxpayers will receive these letters.  Some of the letter recipients have been identified to the IRS based on information reported by virtual currency exchanges, some of which have been cooperating with the IRS requests to submit data on their clients' virtual currency transactions.

There are three forms of the letter, called Letter 6173, Letter 6174 or Letter 6174-A, which are aimed at helping taxpayers better understand the tax filing obligations relating to virtual currency transactions.

IRS Notice 2014-21 contains more details regarding IRS regulations covering virtual currency transactions, and the obligation of taxpayers to report those transactions on their tax returns.