The IRS has begun to take action against people they expect aren’t correctly reporting the income and tax they owe on virtual currency transactions.

The agency recently sent out letters, identified as “Letter 6174-A,” that read: “We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”

The letters inform taxpayers they may be subject to civil or criminal enforcement actions if they don’t accurately...