Blockfi Liquidation on crypto and Taxes

[mshlyaktaxquestions1]

Hello. I was hoping I could get some advice/help of what the proper way to report taxes on Blockfi bankruptcy for crypto. I will try to keep things as short and as concise as I can.

In Nov 2022, Blockfi declared bankruptcy, and distributions of recovered crypto/cash occurred in 2024.

The parties of the bankruptcy court agreed that 100% amount  "recovered" would be equal to the value of the portfolio/account at the time the bankruptcy was declared.

Between February 2024-October2024, 100% was recovered.

In my case, I recovered BTC, ETH, and cash.  The cash distributions were liquidated crypto that were NOT BTC nor ETH.

I also reached out to Blockfi if any tax forms would be released for 2024. They basically said no. So, it will be up to each individual to figure out their cost basis, proceeds, etc,  with the transactional data they have.

Using my data, I was able to deduce each individual crypto's original cost basis and proceeds in USD, along with the selling price of crypto's for the USD cash distribution, and I was able to calculate the amount of crypto that was liquidated as a worthless investment ( i bought crypto  as a pure speculative investment and had no intent of using it for payments or anything else).

For example,

Description                        Date Acquired  Date Sold   Proceeds    Cost Basis          Adjustments     gain/loss     

     a                                                 b                       c                  d                    e                     f               g          h               

0.00344779 BTC Lost           Various           8/23/24          $75             $154                   ??              0       ($79)

The example above is what I managed to do for EACH crypto and cash distribution.

So the questions I have, since I'm NOT receiving a 1099-B, and I recovered crypto at a loss relative to my original cost basis, should I report this on my 8949 Part 2, Section F?

Also, for the adjustment, would it be CODE M as these are from various transactions?

Finally, to remove crypto from Blockfi, I had to pay a fee in the form of that same crypto within the Blockfi exchange to move it to another exchange.

I'm being conservative here because I'm treating it like a disposal fee and because the crypto value had changed, it triggers a capital gain. (Some sources are saying that the fee doesn't trigger a taxable event and I lowered my cost basis, but again I'm being conservative here and believe the crypto fee is more of a disposable fee in my case).  Would I also report this on my 8949 Part 2, Section F?

Thank you for your time and advice.

-Mike

[JamesG1 · Accepted solution]

You have established the amount of the loss after the bankruptcy proceedings have been completed.  You are not receiving an IRS form 1099-B and may enter the transactions on a summary basis or on a One by One basis.

I am able to report the transaction reporting 'Various' dates acquired and reported as (F) Long-term transactions not reported to you on Form 1099-B.

I would report the disposal fee as a sales expense not reported on form 1099-B.

You may enter the summary information instead of each individual transaction.  Create a .PDF of the IRS form 8949 to upload into TurboTax Online.  Follow these steps.       

1. Down the left side of the screen, click Federal.
2. Down the left side of the screen, click Wages & Income.
3. Click the down arrow to the right of Investments and Savings.
4. Click to the right of Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
5. Click Add investments.
6. On the Let's import your tax info screen, select Enter a different way.
7. On the OK, let's start with one investment type screen, select Stocks, Bonds, Mutual Funds, then Continue.
8. At the screen Which bank or brokerage, enter the information.  Click Continue.
9. Do these sales include any employee stock, enter No.
10. Do you have more than three sales, enter Yes.
11. Do these sales include any other types of investments, enter No.
12. Did you buy every investment listed, enter Yes.  Continue.
13. On the screen Now, choose how to enter your sales, select One by One.  Select Continue.
14. At the screen Look for your sales on your 1099-B, click Continue.
15. You will now be able to enter the transaction information.  When finished, select Continue.
16. At the screen Let us know if any of these situations apply to this sale, you may select This was a worthless security.
17. You will also be able to report the disposal fee as a sales expense not reported on Form 1099-B.
18. When completed, close the record and click Continue.

[mshlyaktaxquestions1]

This was very helpful.

Thank you for your time @JamesG1