MSTR Cat

Crypto Law/Level II · Tax: the first trap/2.3 Records and reporting/Lesson 7

Records that survive an audit

What US law requires you to keep for crypto, how long the IRS can look back, and how it already obtains exchange data without asking you.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Download free CSV exports from every exchange each year and keep two copies; platforms close and delete data, and section 6001 puts the burden of proving basis on you.
  2. Keep property records until the assessment period for the year of disposal ends: generally 3 years after filing under section 6501, 6 years if over 25% of gross income was omitted, unlimited for fraud.
  3. Self-custody records need only an address list, transaction hashes and dollar values; that keeps privacy from third parties while meeting the IRS FAQ standard of records establishing your return positions.
  4. Where past returns are wrong, amending voluntarily on Form 1040-X generally limits cost to tax, interest and possibly the 20% section 6662 penalty; exchange data already reaches the IRS by summons and Form 1099-DA.

Materials26 U.S.C. §6001 and §6501 on law.cornell.edu (the record-keeping duty and the assessment time limits)The IRS page ‘How long should I keep records?’Full CSV or PDF transaction exports from every exchange account you have ever used, including closed ones

Wonder

  1. What exactly do I need to keep for each crypto transaction?
  2. How many years back can the IRS go?
  3. If an exchange shuts down, how do I prove what I paid?

Explore

  1. Under 26 U.S.C. §6001, every person liable for federal tax must keep the records the IRS requires. For crypto, IRS Virtual Currency FAQ 46 says to keep records sufficient to establish the positions taken on the return, including receipts, sales, exchanges and other dispositions and the fair market value. The IRS lists what a gain calculation needs: the type of asset, the date and time of each transaction, the number of units, the fair market value in US dollars at the time, and the basis of the units sold. When you claim a specific lot, you also need proof of which lot it was (lesson 2.3.1).
  2. The burden sits with the taxpayer. If the IRS questions a cost figure and you cannot support it, an examiner may treat your basis as unproven, which can turn much of the sale price into taxable gain. On top of the tax, 26 U.S.C. §6662 imposes a 20% accuracy-related penalty on the part of an underpayment caused by negligence or a substantial understatement. Good records also protect you in the other direction: they prove losses (lesson 2.3.3), show that a transfer between your own wallets was not a sale (lesson 2.1.6), and fill the basis gaps on a Form 1099-DA (lesson 2.3.5).
  3. How long to keep records follows the IRS’s time limits for assessing tax. Under 26 U.S.C. §6501, the general limit is 3 years after the return was filed. It becomes 6 years if you omit income of more than 25% of the gross income shown on the return, and there is no limit for a fraudulent return or when no return was filed. The IRS also says to keep records relating to property until the limitation period expires for the year in which you dispose of it. For a coin bought in 2017 and sold in 2026, the purchase records matter for years after the sale.
  4. The IRS does not rely on taxpayers alone. In 2016 it served a John Doe summons, a summons for records of unnamed people, on Coinbase. After narrowing, it covered 14,355 accounts with at least $20,000 in any one transaction type in a year from 2013 to 2015, and a federal court in California enforced it on 28 November 2017. In July 2019 the IRS began sending Letters 6173, 6174 and 6174-A, saying more than 10,000 taxpayers would receive them by the end of August. These letters urged holders to review past returns and, where appropriate, file amended returns.
  5. A Coinbase customer, James Harper, sued, arguing that the summons violated his Fourth Amendment privacy. In Harper v. Werfel, decided on 24 September 2024, the US Court of Appeals for the First Circuit rejected his claim under the third-party doctrine, which holds that people generally have no reasonable expectation of privacy in records they share with a business. The Supreme Court denied review on 30 June 2025. As of October 2026, exchange records shared with the IRS by summons, and now by Form 1099-DA, can be checked against what holders report.
  6. A practical check: once a year, download complete transaction histories from every exchange and platform you use, store them in two places, and add notes on transfers between your own wallets with their transaction IDs. Platforms close, merge and delete data, and blockchain records show amounts and addresses but not what you paid in dollars. Keep copies of filed returns and any tax software reports too. This lesson explains what the law expects; it does not recommend particular software or services. For years where records are already missing, a qualified tax adviser can discuss reconstruction and correction.

Key facts

  • Under 26 U.S.C. §6001, every person liable for federal tax must keep the records the IRS requires.
  • Under 26 U.S.C. §6501, the IRS generally has 3 years after a return is filed to assess tax, 6 years if more than 25% of gross income was omitted, and no limit for fraud or no return.
  • The IRS advises keeping property records until the limitation period expires for the year in which the property is disposed of.
  • The narrowed 2016 IRS John Doe summons to Coinbase covered 14,355 accounts and was enforced by a federal court on 28 November 2017.
  • In July 2019 the IRS began sending Letters 6173, 6174 and 6174-A to virtual currency holders and said more than 10,000 taxpayers would receive them.
  • In Harper v. Werfel (1st Cir. 2024), the court rejected a Fourth Amendment challenge to the Coinbase summons, and the Supreme Court denied review on 30 June 2025.

Exercise nine, six, three, one

9CollectList up to 9 sources of records for your own crypto history or a realistic example, such as exchange exports, wallet addresses, bank statements, emails, tax software reports and filed returns.
6ClusterSort them into 6 categories: records of purchases, records of sales and swaps, records of income received, records of transfers between own wallets, filed returns and forms, and records you know are missing.
3DistillReduce the 6 categories to 3 groups: records you hold and can produce today, records you could still obtain, and records that are lost.
1CrystallizeWrite 1 sentence explaining, in your own words, why the records of a purchase must be kept for years after the coin is sold.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS