How should we treat assets on blockfi (with ongoing bankruptcy proceedings) for tax filing ?

[josepha01]

I had some Crypto Assets in block fi interest accounts in 2022. 

It is easy for me to get a report of the interest earned prior to them declaring bankruptcy.  

Q1. My assumption is that although I have not been able to withdraw any of interest earned since the platform was shutdown; i would still need to report it as income for 2022. Best case scenario would be that I get the money out after the proceedings are completed. 

However, what is not clear is the treatment of the crypto assets that the platform was the custodian of (on my behalf). They seem to be calculating the value of our holdings based of values on Nov 28th 2022. However the bankruptcy proceedings are still ongoing and there's no guarantee that we will actually get that money.

Q2. For the purpose of tax filing, am I required to treat those assets as sold on Nov 28th 2022 and pay tax on the captial gains (that will remain unrealized till next year or possibly forever?)

[GeorgeM777]

Question 1 - Yes, report the interest income you earned despite the bankruptcy proceedings.  In the future, you may need to amend your return depending on the outcome of the bankruptcy proceeding, but for now, just report the interest income.

Question 2 - No, unless there is a specific direction from the Bankruptcy Court regarding treating assets held in BlockFi accounts as sold, then do not report your cryptocurrency as sold.  When the bankruptcy proceeding has concluded, you will know what you will receive as a creditor. You, and others similarly situated, may be unsecured creditors, therefore you are correct to state that there is no guarantee that you will actually get anything at the conclusion of the bankruptcy proceeding.   

Here is some information copied from the U.S. Bankruptcy Court for the District of New Jersey website that relates to BlockFi.  You may find this helpful, particularly the link that relates to obtaining docket and case information about the BlockFi bankruptcy. 

BLOCKFI CLIENT QUESTIONS

The Debtor, BlockFi Inc., has established an email address devoted to answering questions and providing information to BlockFi clients.  To the extent you have questions about your assets (including questions about transfers, BIAs, your BlockFi account or wallet), please submit your inquiry via email to: BlockFiInfo@ra.kroll.com

BLOCKFI DOCKET AND CASE INFORMATION

Use the following link to access the BlockFi bankruptcy docket and find information about the case.

https://restructuring.ra.kroll.com/blockfi/