The single most common reason crypto taxpayers fail to file is missing records. Exchanges shut down. CSV exports were never downloaded. Multiple wallets across multiple chains make comprehensive tracking feel impossible. The IRS still expects compliance — but the law provides tools for dealing with incomplete records.
The Record Requirement
The IRS requires taxpayers to maintain adequate records of all transactions. For cryptocurrency, this means purchase dates and prices, sale dates and prices, exchange fees, transfer records, and any other data needed to calculate gains and losses. In practice, few crypto investors maintained this level of documentation, particularly in the early years.
Reconstruction Methods
Even when you believe records are lost, reconstruction is usually possible. Major exchanges retain historical data for years — contact support and request complete transaction history. Blockchain transactions are permanently recorded and can be reconstructed using blockchain explorers (Etherscan, Blockchain.com, etc.) with your wallet addresses. Bank and credit card statements show fiat on-ramps and off-ramps. Email confirmations of purchases provide dates and amounts.
The Cohan Rule
When records are genuinely unrecoverable, the Cohan rule (from Cohan v. Commissioner, 1930) allows taxpayers to use reasonable estimates for deductions and cost basis when the taxpayer can demonstrate that expenses were actually incurred. This does not mean you can invent numbers — but it does mean that a reasonable, documented estimation methodology is acceptable when perfect records are unavailable. The burden shifts to demonstrating that the methodology is reasonable.
What the IRS Accepts
The IRS would rather receive a return based on reasonable estimates than no return at all. A return filed with a documented estimation methodology is substantially better than unfiled returns where the IRS files SFRs using gross proceeds with zero cost basis. The key is documenting your methodology — what data sources you used, what assumptions you made, and why those assumptions are reasonable.
Professional Reconstruction
Attorney Darrin T. Mish works with crypto-specialized accountants to reconstruct transaction histories from available data, apply appropriate estimation methodologies where records are missing, prepare defensible returns, and resolve any resulting liability with the IRS. The fact that your records are imperfect is not a reason to avoid filing — it is a reason to get professional help. Free consultation.