How to report crypto trades involving bankrupt/defunct exchanges like FTX or Celsius for tax purposes

Tax professional here. This is actually a common issue with crypto, especially after several major exchanges collapsed. The IRS expects you to maintain accurate records of all your crypto transactions regardless of what happens to the exchange. Your personally maintained records are completely valid for establishing cost basis. Make sure you have as much documentation as possible: screenshots of the original transactions, bank statements showing transfers to the exchange, email confirmations, etc. The more evidence you can gather to support your claimed cost basis, the better your position will be if audited. When filing, you'll report the transactions on Form 8949 and Schedule D. You'll need to check box C on Form 8949 (transactions with no 1099-B received) and include a note that explains the original exchange is defunct and that you're using personally maintained records for the cost basis. The IRS typically won't go through the trouble of requesting records from a bankrupt exchange's estate - that process would be difficult and time-consuming for them. Instead, the burden of proof falls on you as the taxpayer.

I went through something similar with the whole FTX collapse last year and found https://taxr.ai super helpful. I was stressing about documenting my cost basis from transactions on defunct exchanges (not just FTX but some smaller ones too). Their system was able to help me reconstruct my transaction history by analyzing bank statements, wallet transfers, and even partial records I had saved. It basically creates a comprehensive document trail that shows how you calculated your cost basis. The peace of mind knowing I had proper documentation in case of an audit was worth it. They also helped me format everything correctly for the tax forms which was confusing with all the different boxes and codes.

Just wanted to follow up about my experience with taxr.ai - I decided to try it despite my initial skepticism, and I'm actually really impressed. I had a complicated situation with coins purchased across several now-defunct exchanges plus some DEX transactions. Their system was surprisingly thorough in helping establish a proper audit trail. They didn't just calculate numbers but actually helped create documentation that explains how each cost basis was determined. The reports they generated looked professional enough that I feel much more confident about defending my numbers if questioned. What really surprised me was when they flagged some transactions I had completely forgotten about that actually reduced my tax liability. My situation wasn't exactly the same as yours, but for anyone dealing with missing crypto tax records, it was definitely worth checking out.

If you're getting audited and the IRS is questioning your cost basis, don't even bother trying to call them directly. I spent WEEKS trying to get through to someone who could actually help with my crypto audit situation. Finally used https://claimyr.com to get through to a real person at the IRS (you can see how it works here: https://youtu.be/_kiP6q8DX5c). Got connected to a specialist who explained exactly what documentation they consider acceptable for establishing crypto cost basis when exchanges go under. The agent told me they see this issue all the time now and there's an internal process for handling these claims. Having that conversation saved me from potentially having my entire claimed cost basis rejected, which would have meant paying taxes on the full amount as if I had gotten the crypto for free.

I have to eat my words about Claimyr. After continuing to struggle getting clear information about my crypto audit, I decided to try the service. Got through to an IRS tax advocate who specialized in cryptocurrency issues within an hour. The advocate confirmed exactly what I needed to document my missing cost basis - they said personal records ARE acceptable as long as they're reasonable and consistent. She also explained that in cases of bankrupt exchanges, they actually have a specific internal process for verifying claims against whatever records the IRS might have received from the exchange's bankruptcy proceedings. Most importantly, I learned that if you have incomplete records, they will accept reasonable reconstructions based on historical price data IF you can document the approximate dates of purchase. This was huge for me since I was missing exact records for some transactions but knew roughly when I bought everything.

Just want to add that I went through a similar issue last year. Make sure you're also looking at the specific crypto tax guidance in Notice 2014-21 and Revenue Ruling 2019-24. The IRS still hasn't given super clear guidelines on all crypto situations, but these documents at least set the foundation. I ended up using the "first-in, first-out" (FIFO) method for calculating my basis and documented EVERYTHING. I saved emails, screenshots of transactions, bank transfers, even Reddit posts I made at the time talking about my purchases as further evidence. My accountant said the key is consistency - whatever method you use to track your basis, stick with it for all crypto transactions. Don't cherry-pick methods to minimize taxes.

Don't overthink this. I had the same issue with Voyager when they went under. I just reported my loss based on my own records (I had screenshots of my purchases thankfully) and included a brief statement explaining the situation. Filed last year, got my refund, no questions asked. The reality is, the IRS is so backed up and understaffed that they're not going to audit every crypto trader claiming losses from bankrupt exchanges. They're looking for people hiding huge gains, not documenting losses. Just make sure your records pass the "reasonable" test - meaning if someone looked at them, would they seem like legitimate documentation of what you paid? As long as you're not claiming some crazy cost basis that makes no sense with market prices at the time, you'll probably be fine.