Advice on reporting sold crypto tokens received as a court settlement from a bankrupt crypto exchange

[zombitroid]

My cryptocurrency exchange (voyager ) went bankrupt in 2022 and partially reimbursed in 2023 ( got crypto tokens back ), and another check ( cash ) came in 2024.

I got back about 35.7% of the portfolio in the form of crypto in july of 2023. I got another 34.28% in summer of 2024. So I got back 69.98% in total so far. The court hearings have continued to proceed onwards.

I sold some of the crypto tokens I received in 2023 in 2024. How do I report the gains / losses on those transactions?

My understanding was that for the 35% of my initial investment which was recovered and sent to me in the form of crypto ( not cash ), which I sold in december 2024, these assets are to be claimed as a profit / loss the moment they are sold. So that would be december 2024.  How do I report the profit / loss on those transactions? What do I use for the cost basis?  As an elementary example:

• Lets say you had 1000 DOGE coins with an original average cost basis of $0.20 / token
• Lost all of the 1000 DOGE as part of the bankruptcy. 
• Got back 400 as part of the first distribution ( bankruptcy reimbursement / court settlement )
• then SOLD that same 400 crypto later on for $0.40 / share 

Would you then report the income for that year you sold it and use the average cost basis applied to the 400 DOGE? (example A) 

OR do you use the cost basis of the entire LOT ( 1000 tokens, sold 400 ) ?? ( example B )  

Example A:

profit from the sale - the cost basis of the 400 = profit - (cost basis * quantity ) = ( $0.40 * 400 ) - ( $0.20 * 400 ) = $160 - $80 = $80 profit...

Example B:

profit from the sale - the cost basis of the 1000 = profit - (cost basis * quantity ) = ( $0.40 * 400 ) - ( $0.20 * 1000 ) = $160 - $200 = LOSS of $40.00

My instincts tell me its example A, that is how you should report it. Don't claim a loss on the other 600 until they are distributed to me, or until the bankruptcy hearings are over. For the amount that I sold, for the cost basis, use the number that I actually paid for the 400 DOGE... So if I paid $0.20 per, I use $0.20 * 400 as my original cost basis, and for the profit I use $0.40 * 400. That is what I think the answer is but I'm hoping someone on here can help me confirm that

I'm guessing that because these court proceedings are ongoing that you can't claim a loss on the original total lot value ( 1000 tokens ) only a profit / loss on the portion you sold. Voyager is still technically battling it out right now in the courts for the other 30%, and seeing how much of that they can recover ( there is no way they will recover 100% of our investments ).

So I can't claim a loss for any of these unrecovered investments right? Not until it is determined that there will be no more reimbursements / court reimbursements ?

Other question: as for the cash check representing 34.28% of my portfolio (crypto token investments) they mailed me. I treat that as if voyager ( or I ) SOLD the assets, right?? And then claim the profit / loss after that? Using the original cost basis of the 34.28%?? 

FYI - here is what voyager said:

"Voyager cannot provide you with tax advice and the company’s reorganization raises certain tax complexities. While we cannot be entirely certain, we believe that (a) the company’s Chapter 11 Bankruptcy filing should not affect your tax obligations, and (b) because your crypto claim has not yet been adjudicated, it is our understanding that you likely cannot use the company’s bankruptcy to claim a loss with respect to any cryptocurrency you deposited on the Voyager platform. You are highly encouraged to obtain independent tax advice.

Best Regards,

Team Voyager" 

I hope my questions make some sense.

I sincerely appreciate all the help. Taxes are a nightmare but I want to work to understand them.

-Jeff

[RobertB4444]

You have a couple of options for how to enter the sale of the crypto that you received.  

You can enter it as a break even using a portion of the basis that you had in the original investment or you can enter it as a 100% gain and hold onto the basis until the lawsuits are finalized with Voyager.  

If you choose to enter it as a 100% gain then the basis on this sale would be zero and all of the basis that you had in Voyager will carry forward until the lawsuit is finalized.

If you choose to enter it as a break even then you will use as much of the basis as is necessary to get a zero sum sale.  If your original basis was $1000 and you sold the crypto that you received for $400 then you would enter $400 as the basis and the gain is zero.  Then you will still have a $600 basis to carry forward and use against the final result of the lawsuit.  

If you receive nothing else in settlement then the remaining $600 would be entered as a sale on the date that the suit is finalized with a sale price of zero and a basis of $600.  If you receive more crypto at some point then the $600 basis would transfer to the crypto received in the final transaction.

@zombitroid