Basis reconstruction for a settled FTX customer claim

Does the evidence support a reasonable reconstruction?

Yes. Tax law does not always require absolute mathematical certainty if the existence of a cost basis is clear. Under the historic Cohan Rule (Cohan v. Commissioner, 39 F.25d 540), courts can allow a taxpayer to estimate the basis of property if it is clear an expense or acquisition occurred, provided there is a credible evidentiary basis for the estimate.

However, because cryptocurrency is subject to strict identification rules, the IRS may reject a speculative estimate if it risks a double tax benefit (e.g., if those same USDC lots were already used to offset gains in 2022).

The surviving entitlement should be analyzed as a separately costed receivable (a right to payment) rather than as continuing USDC property.

The Extinguishment Event: Under IRC § 1001, the conversion of your specific USDC rights into a general unsecured right to a fixed fiat payout constitutes a disposition or exchange of that cryptocurrency property.

The New Asset Class: You no longer hold digital currency; you hold a bankruptcy claim receivable. Therefore, rules governing continuing crypto properties—such as ongoing lot tracking or specific token-identification criteria—cease to dictate the character of the asset

Because your 2022 USDC disposals were reported in aggregated blocks, you must use a process of elimination calculation to prove the cost basis you are claiming wasn't already burned up in those 2022 disposals.

You must build an All-Time USDC Reconciliation Ledger spanning from your first crypto acquisition through the 2025 settlement. The exact mathematical formula to prevent duplicate cost use is:

Total Capital Injected-Total Basis Expensed In 2022=Maximum Available Remaining Basis

Under IRC § 1012 and general federal tax common law, several alternative, grounded estimation approaches exist to establish a defensive cost floor.

When specific identification fails or records are partially obscured, tax authorities default to First-In, First-Out (FIFO) under Section 1.1012-1

• The Method: Identify the absolute lowest market price that USDC or USD-equivalent assets traded at during your entire historical acquisition window in 2022.
• Application: While USDC is a stablecoin pegged to $1.00, it experienced minor historical de-pegging fractions (e.g., dipping to $0.97 or $0.98 during brief periods of high volatility). By reconstructing your remaining claim pool using the absolute historical "floor" price of USDC from that year, you establish a mathematically bulletproof minimum basis that guarantees you are not overstating your deduction.

If the internal transactional tracking of the exchange is too complex to verify, shift focus entirely to external flow boundaries.

• The Method: Calculate your Net Lifetime Out-of-Pocket Cost tied specifically to that FTX account.
• The Calculation:

• Total Cumulative Cash Injected (All-Time)−Total Cash Withdrawn (All-Time)=Unrecovered Capital

The Cohan Rule (Cohan v. Commissioner) allows taxpayers to estimate an expense or basis if it is clear an acquisition occurred, provided there is secondary evidence to form a reasonable basis for the estimate.

• The Method: Present your bank funding records alongside the FTX bankruptcy statement showing the statement amount allowed claim to demonstrate that an economic loss occurred.
• Application: You acknowledge a "substantiation gap" regarding the exact underlying token lots, but argue that the existence of a substantial basis is indisputable due to the bank funding records. Under Cohan, you apply a conservative haircut to the claim (e.g., claiming 85–90% of the $1,592 candidate value) to account for estimation uncertainty. This signals to an auditor that you have factored in a margin of error for the missing lot details

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