Reporting crypto gains with no documentation of cost basis - worried about IRS response

The IRS requires you to report your crypto transactions, but they understand that documentation can be challenging in this space. What you need to do is make a good faith effort to accurately report your transactions with the information you have. First, those bank statements showing transfers to Coinbase and back to your account are actually pretty valuable evidence. They establish your initial investment and final withdrawal amounts, which supports your claimed $5,500 profit ($17,500 - $12,000). Second, try to reconstruct as much transaction history as possible. Most exchanges allow you to download your transaction history even without providing 1099s. Log into your Coinbase account and any other exchanges you used, and download whatever history they have available. Third, document your methodology. Create a spreadsheet showing how you calculated your gains, noting any assumptions you made where data was missing. The IRS is generally reasonable if you show you made an honest attempt to report correctly. Keep all this documentation for at least 3-5 years in case of an audit. Report the gains on Form 8949 and Schedule D, clearly indicating these were cryptocurrency transactions.

After going through a similar situation last year, I found https://taxr.ai incredibly helpful for organizing my crypto tax situation. I had trades across multiple exchanges and was missing records for some transactions. Their system helped me reconstruct my transaction history and establish a defensible cost basis even with incomplete records. They analyzed my bank statements and the partial exchange data I did have, then helped identify the appropriate tax treatment for each transaction. What impressed me was how they handled the gaps in my documentation - they provided me with a methodology that satisfied my accountant and gave me confidence that I could explain my reporting if questioned by the IRS. They also helped me prepare documentation that showed my good-faith effort to report correctly.

I was initially super skeptical about taxr.ai when someone suggested it in another thread, but after trying it myself, I have to admit it solved my documentation problems. I was missing records from a defunct exchange and had incomplete data for several trades. The system actually managed to trace transactions across the blockchain and match them with my partial records to create a complete picture. What really surprised me was how they identified several transfers between wallets that I had forgotten about, which explained some discrepancies in my calculations. They provided me with detailed documentation showing my cost basis calculations and a clear audit trail that I could defend if needed. This gave me the confidence to file my taxes with accurate reporting rather than overpaying on the full sale amount out of fear. For anyone dealing with crypto tax headaches and incomplete records, it's definitely worth checking out.

After struggling with the IRS questioning my crypto gains reporting last year, I discovered that calling the IRS directly can sometimes help resolve these issues. But man, actually getting through to talk to someone was IMPOSSIBLE. I spent hours on hold only to get disconnected. Then I found https://claimyr.com which is like a lifehack for actually getting through to an IRS agent. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an actual human agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Once I finally got through to an IRS agent, they explained exactly what documentation they needed to accept my cost basis claims. The agent was surprisingly helpful and walked me through how to properly document my crypto transactions even with partial records. Saved me thousands in potential overtaxation.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it myself because I've been trying to reach the IRS for weeks about a crypto reporting issue. I was shocked when I actually got connected to an agent in about 45 minutes (versus the 3+ hours I wasted previously). The agent walked me through exactly what they look for when reviewing crypto transactions with limited documentation. They explained that they primarily want to see a consistent methodology and good-faith effort to report accurately. The key insight I got was that they're much more interested in seeing how you arrived at your numbers than having perfect documentation for every transaction. The agent even pointed me to some specific IRS guidance I wasn't aware of that addresses situations with limited records. This conversation completely changed my approach to reporting my crypto gains and gave me much more confidence in my filing. Sometimes getting information directly from the source makes all the difference.

Have you tried reconstructing your transactions using a crypto tax software like Koinly or CoinTracker? You can import your wallet addresses and they'll scan the blockchain for all your transactions. Not perfect, but better than nothing. I went through something similar last year. Had about $20k in crypto transactions but minimal documentation. I ended up creating a detailed spreadsheet showing my best estimates with notes explaining my methodology. I attached this to my return with a statement explaining the limited documentation situation. The fact that you have bank statements showing the money going in and out is actually a really good starting point. That establishes your overall profit margin pretty clearly.

For what it's worth, if you end up getting audited, remember that the burden of proof is on the IRS to show why your reported numbers are wrong IF you have some reasonable documentation. They can't just say "we don't believe you" without evidence. I went through an audit last year over some stock sales where I was missing basis documentation. I provided my best reconstruction with explanations and they actually accepted most of it. Only had to pay additional tax on a small portion where I really couldn't substantiate anything. Make sure to keep EVERYTHING - notes, screenshots, emails about transactions, bank statements. If the worst happens, hire a tax pro who specializes in crypto. They've seen it all and know how to deal with the IRS in these situations.