Virtual Currency "Organizer"

Clients often ask, "what do you need for my crypto trading"?

Do you have any "cans", "organizers" or other intellectual property you can share for when client's ask?

Please let me specify that I do not do the bookkeeping for them or accept 1000 trades of raw data.

I only have the following, and I don't like it (I'm not even sure I'm doing it right):



Please include the following information for all transactions that closed (sold or covered) in the applicable tax year.

1) Purchase Date
2) Purchase Price
3) Date position closed (Sold)
4) Proceeds less commission

---OR----

If you are a very active Virtual-currency or Foreign investment trader and the above is not practical, you can summarize the transactions in 2 separate categories and provide the statements to be attached to the e-file:

Long term: Those positions held for more than 1 year
Short term: Those positions held for up to 1 year

Summaries should include the sum of all purchases and the sum of all proceeds. To report your transactions as a summary in this way, we would need to attach a brokerage statement or similar document of the trading history showing the individual transactions.

Please let us know if you have any questions regarding this and we can explain further.

(Note: The bookkeeping to create a summary from your raw transactions is beyond the scope of our tax preparation services and we are not able to provide this service. There are apps and services that might do this for you. Please do a search online.)

From 2020's organizer:

Did you or any of your dependents receive, acquire an interest in, exchange, sell, send or dispose of any virtual currency/cryptocurrency (such as bitcoin) during 2020?

If yes, please upload a ledger, in Microsoft Excel file format, of all virtual currency transactions occurring during 2020.

Most of them provide an excel export from their platforms that lists date, description, quantity, etc so it gives me exactly what I need. I know Coinbase does.

Do you sum up the short term and long term transactions?

Or do you list each of the transactions separately?

On the 8949?

List separately. Most of my affected clients have less than a half dozen transactions each year. I pick cost basis advantageously based on prior year data they've given me and their current year sales. That gets reported on the 8949. Even made a template to track cost basis by lot.

It's all internalized into the fee.

If there were a lot of transactions, I'd discuss how much it would cost to do things the "lazy" way vs providing me data in 1099-B format. i.e. client is responsible for determining cost basis. Let the client choose, bill accordingly.

Crypto (direct crypto, not an ETF or trust security) is not a security for purposes of wash sales, so there's quite a bit of value we can provide in this area and bill for, IMO.

Slightly off topic, but the 2021 draft 1040 currently reads:

At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?

vs the 2020 Form 1040:

At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

It looks like they're trying to gear the question toward taxable events. I know there was quite a bit of debate over the plain language on the 2020 return. I was involved in a lot of that.

Interesting.

Yes, I remember you had at least one post concerning a run-in with a client about that.

Still has the word "receive", however.

We don't report receiving a stock in exchange for USD, interesting that we would have to check the box for a similar transaction with VC.

Plus, what if a client buys the new Bitcoin ETF - does that count?

Plus, what if a client buys the new Bitcoin ETF - does that count?

We were discussing that in a CPE this morning. The presenter felt the conservative position is that an ETF or mutual fund that holds VC is considered VC for purposes of that question.

I would also check it to be on the safe side.

But an ETF held in a typical US broker account containing non-US investments would NOT trigger a 8938 or PFIC requirement (right?), so that's not very consistent.

Not complaining or disagreeing, just noting.

Interesting post! I’m curious to know whether or not this information is always readily available for clients to provide. Could there be instances where determining the cost basis is not possible or unknown? Are there instances where manual entry is the only way and if so would historical price points for the virtual currency be hard to gather?

Interesting post! I’m curious to know whether or not this information is always readily available for clients to provide. Could there be instances where determining the cost basis is not possible or unknown? Are there instances where manual entry is the only way and if so would historical price points for the virtual currency be hard to gather?

Absolutely. There are not trading hours for VC to help establish a cost and we are all aware of the volatility. Coinbase users, for example, receive emails of purchase and sales confirmations that include date, qty, and cost. They also have access to transaction records, but they're not like brokerage statements that generally provide the cost basis even when multiple "lots" are sold at once. Burden has to be placed on clients...and it is even worse if they trade one VC for another.

I have not dealt with it, yet, outside of my own VC activity, which is pretty minimal, but I am convinced a number of clients are lying on this entire matter. But, if they mark NO to my very specific question that mirrors that of the 1040, then I cannot do much.

Coinbase's excel exports are pretty good. If all a client's VC activity is at Coinbase and they provide that excel export every year, you have everything you need. Just build a template to keep track of lots and buys & sells each year.

but I am convinced a number of clients are lying on this entire matter. But, if they mark NO to my very specific question that mirrors that of the 1040, then I cannot do much.

Exactly, you've met your due diligence burden. If we ask a plain language question and a client chooses to lie, there's not much we as practitioners can do other than make sure the question and answer have been documented.

This year, I am throwing in a couple of trick questions in areas I believe clients are lying. If they mark one yes but another no, it'll trigger additional inquiry and they will need to have pretty good justification for a discrepancy.

More effort than I would expend, but everyone will run their practice differently.

If they trigger your suspicions, are you going to call them into a 10 by 10 room with nothing but a desk, two metal chairs and a hidden camera in the wall, and keep the AC on 55 degrees?

"My name is Detective Cornerstone, I'm going to read you your rights before we start."

Ha, no, but with my growth it will help me identify clients to flag for disengagement.

This year, I am throwing in a couple of trick questions in areas I believe clients are lying. If they mark one yes but another no, it'll trigger additional inquiry and they will need to have pretty good justification for a discrepancy.

"On a scale of 8-10, how much tax fraud are you committing this year?"