Last Updated on February 27, 2026 by Patrick Camuso, CPA
Digital asset tax compliance has historically been low. Fragmented wallet usage, multi-exchange trading, protocol-level complexity and inconsistent record retention have produced widespread inaccuracies in digital asset accounting. Many taxpayers relied on aggregated exchange summaries or automated crypto tax software outputs that were never reconciled at the tax-lot level across wallets, bridges, custodians, and protocol interactions. The result is a significant population of returns supported by incomplete acquisition history, unmatched transfers, incorrect holding periods, and inventory pools that cannot be traced forward with precision.
For taxpayers working with a specialized crypto CPA firm, historical accounting and lot-level substantiation have become foundational requirements rather than optional enhancements.
When digital assets are treated as property for federal income tax purposes, each disposition must be supported by a documented acquisition, and each remaining unit must carry a defensible cost basis and holding period.
A defensible reconstruction must produce a system that is internally consistent across wallets, exchanges, and protocols across all tax periods. The reconstruction must also align with prior-year reporting or implement a deliberate and documented transition where historical methodology requires modification. Finally, the reconstruction must be supported by an evidentiary file capable of withstanding IRS examination.
Cost basis is cumulative and carries forward across tax years. That means each unit acquired establishes a tax lot with a specific basis and acquisition date. When that unit remains unsold at year-end, its basis does not disappear. It becomes beginning inventory for the next year. Every subsequent disposition pulls from that inventory.
If a taxpayer understates basis in Year 1, the distortion flows into Year 2 because the remaining lots are misstated. If holding periods are misdated, long-term and short-term classifications in later years may be incorrect. If transfers are mischaracterized as taxable events, phantom gains may contaminate the inventory pool. These errors do not self-correct, they compound.
This cumulative nature of cost basis is what makes historical accounting and reconstruction structural rather than elective. Each year’s ending basis becomes the next year’s starting position. Without accurate reconstruction of legacy lots, future reporting rests on a defective foundation.
What “Cost Basis Reconstruction” Means
Crypto cost basis reconstruction is the systematic rebuilding of a taxpayer’s digital asset ledger at the tax-lot level so that every disposition can be traced to a properly documented acquisition and defensible basis.
Because digital assets are treated as property for federal income tax purposes, each unit sold, exchanged, spent, or otherwise disposed of must be tied to a specific acquisition. A compliant reconstruction produces a lot-level inventory system that explains, for every unit disposed, the asset identity, the acquisition date and time, the original cost basis, and the holding period. It must also document how the asset moved across wallets, exchanges, custodial platforms, bridges, wrapped-token representations, liquidity pools, staking contracts, and other protocol interactions. Finally, it must demonstrate when the asset was disposed and how proceeds, fees, and adjustments were calculated in determining taxable gain or loss.
In practical terms, crypto cost basis reconstruction means establishing continuity of basis and lot identity across all platforms and chains involved in the taxpayer’s activity. It requires transfer reconciliation, normalization of transaction data, classification of protocol events, and explicit documentation of any assumptions made where records are incomplete. The output is not merely a gain and loss summary; it is a traceable, defensible ledger that can be carried forward across tax years.
Cost basis reconstruction is an evidentiary accounting process. Its purpose is to ensure that digital asset gain and loss reporting is accurate, internally consistent, and capable of withstanding IRS examination.
Minimum Acceptable Output: Audit-Defensible Digital Asset Reconstruction
A crypto cost basis reconstruction is only as strong as the documentation it produces. An audit-defensible reconstruction must generate a complete, traceable record set that supports both historical reporting and future carryforward. At a minimum, several core components must exist.
First, there must be a comprehensive lot-level schedule. This schedule should identify each tax lot with its acquisition date and time, asset identity (including contract address where relevant), quantity acquired, adjusted cost basis (including capitalized fees and subsequent basis adjustments), and holding period classification. This schedule forms the foundation of digital asset gain and loss reporting and must be capable of rolling forward into subsequent tax years without breaking continuity.
Second, the reconstruction must produce a disposition schedule that ties directly to those underlying lots. Every sale, exchange, or taxable disposition must reference the specific lot or lots relieved, clearly showing the amount realized, associated fees, holding period, and resulting gain or loss. The disposition schedule should reconcile to the tax return and, where applicable, to broker-reported proceeds.
Third, there must be a documented transfer reconciliation file. Digital asset activity frequently involves movement between wallets, exchanges, bridges, and smart contracts. A defensible reconstruction requires a systematic reconciliation of inbound and outbound transfers, identifying matched movements and explicitly listing unresolved exceptions. Unmatched transfers represent potential risk and must be investigated and documented rather than silently ignored or misclassified as taxable events.
Fourth, an assumptions register must exist. Where transaction data is incomplete or historical records are unavailable, each gap must be identified, the evidence available must be described, and the conservative treatment adopted must be documented. This register demonstrates that the reconstruction process evaluated evidentiary limitations and applied reasoned judgment rather than arbitrary adjustments.
Finally, a formal methodology memorandum should accompany the reconstruction. This memo should explain the scope decision (universal versus account-by-account tracking), the continuity posture relative to prior-year reporting, and any transition or allocation analysis performed, including strategy under Rev. Proc. 2024-28 where applicable. The methodology memo establishes the intellectual and procedural framework supporting the reconstruction.
Together, these elements convert raw transaction data into a defensible digital asset accounting system. Without them, a crypto tax calculation may produce numbers, but it does not produce substantiation.
Structural Consequences of Inaccurate Basis
When historical tax lots are inaccurate, the impact does not stop in the year of origin. Each subsequent disposition draws from the remaining inventory pool. If acquisition dates were misrecorded, holding periods in later years may be incorrect. If basis was overstated or understated, future gain and loss calculations will reflect that distortion. If transfers were misclassified as taxable events or ignored entirely, lot continuity may be broken.
Because beginning inventory in one year becomes ending inventory in the next, errors compound. A misstatement in an early year can cascade across multiple tax periods, affecting character classification, capital loss carryforwards, and aggregate tax liability. The longer the error persists, the more embedded it becomes in future reporting. Cost basis, by design, accumulates and carries forward. Without historical reconstruction, inaccuracies are amplified.
A common misconception is that a taxpayer can simply begin reporting correctly in the current year without revisiting historical records. In practice, this approach rarely works.
Future dispositions require prior inventory lots. If the underlying acquisition history is incomplete or misstated, there is no reliable inventory from which to calculate gain or loss. Simply applying correct methodology to flawed beginning balances does not produce accurate results. The error persists because the starting position remains defective.
The only scenario in which a clean break is theoretically possible is if the taxpayer disposes of all legacy holdings and re-establishes positions with fully documented acquisitions. Even then, prior-year reporting issues may remain unresolved and potentially subject to examination. In most cases, legacy errors remain embedded unless affirmatively reconstructed and corrected.
The introduction of broker reporting under Form 1099-DA increases the visibility of digital asset transactions and the likelihood of automated mismatch detection. Beginning with 2025 transactions, brokers will report digital asset sales to the IRS, with cost basis reporting phased in over time. As reporting becomes more granular and account-specific, discrepancies between broker-reported proceeds and taxpayer-maintained inventory records become easier to identify.
This reporting framework forces reconciliation since taxpayers must align broker statements with self-custody activity, cross-platform transfers, and historical acquisition records. Where legacy inventory is inaccurate or undocumented, broker-reported dispositions may appear to lack basis support. As the reporting regime matures, the tolerance for unexplained discrepancies narrows.
Rolling inventory errors that may have gone undetected in earlier years are therefore more likely to surface under broker-level reporting. Historical accounting and reconstruction are no longer defensive exercises; they are prerequisites for reconciling a taxpayer’s internal ledger with third-party reporting systems.
Taxpayers facing Form 1099-DA reporting requirements must ensure that historical inventory reconciles to broker-level proceeds and future basis reporting. A detailed breakdown of these broker reporting mechanics is outlined in our analysis of 1099-DA broker reporting rules.
Legal and Regulatory Framework
Cost basis reconstruction is a response to statutory and evidentiary requirements that govern property taxation. Digital assets are treated as property for federal income tax purposes, and reconstruction must operate within that framework.
At the core is the basis and gain-or-loss structure. Gain is measured as the amount realized minus adjusted basis. Adjusted basis begins with acquisition cost and is modified over time by allowable adjustments. That framework assumes the existence of identifiable property units and traceable cost. Without lot-level continuity, the statutory calculation cannot be applied reliably. Reconstruction exists to restore that continuity where it has been fractured by incomplete records, fragmented custody, or inconsistent accounting.
Taxpayers are required to maintain sufficient records to substantiate the items reported on their returns. Reconstruction is, in many cases, an attempt to satisfy that obligation after the fact using the best available evidence
The burden of proof principles that apply here are not novel and are not unique to digital assets. They derive from longstanding tax controversy doctrine. Courts have, in limited circumstances, permitted estimation where a reasonable factual basis exists and the taxpayer can demonstrate that expenses or basis were incurred, even if exact amounts cannot be proven. That lineage is often associated with the Cohan doctrine. However, estimation is constrained, fact-specific, and not a substitute for maintainable records.
Modern cases frequently decline to permit estimation where proper records could have been maintained or obtained. Courts may deny relief where the taxpayer failed to preserve documentation that was reasonably available. This principle is especially relevant in the digital asset context, where transaction data is often retrievable from exchanges, on-chain records, email confirmations, or custodial archives. The existence of accessible digital trails narrows the tolerance for unsupported approximation.
The practical implication for crypto taxpayers is straightforward. Average-cost guesses, unsupported lot reconstruction, or arbitrary plugs are not reliable. Absent credible primary, secondary, or tertiary evidence and a documented conservative posture, such approaches represent tax position risk. Where assumptions are necessary, they must be grounded in available evidence, applied consistently, and evaluated for disclosure considerations where the posture is aggressive rather than conservative.
Universal vs. Account-by-Account Reconstruction
Every crypto cost basis reconstruction must be designed around an explicit cost basis tracking framework that determines how inventory is tracked across wallets, exchanges, and protocols. This decision determines how lots are traced, how transfers are reconciled, how basis continuity is preserved, and how the ledger will withstand examination.
A universal reconstruction treats the taxpayer’s holdings as one integrated economic inventory system. Under this approach, digital assets are tracked as a consolidated pool, and lots are traced across all wallets, exchanges, custodians, and protocol interactions. Transfers are not treated as segmentation events; they are movements within a single property system.
An account-by-account reconstruction maintains segmented inventory pools per exchange or wallet. Transfers are treated as explicit lot movements between pools. Each account effectively maintains its own beginning and ending inventory, and lot continuity is preserved through documented transfer events.
Prior-year tax reporting often embeds an implicit methodology. Any shift in method must be evaluated against how inventory was historically reported. If prior reporting functioned as universal pooling, transitioning to account-by-account tracking typically triggers allocation and transition issues that must be addressed deliberately rather than assumed.
Rev. Proc. 2024-28 and the Allocation of Legacy “Unused Basis”
For taxpayers who historically tracked digital assets on a universal basis, the allocation of legacy basis is a structural compliance step.
In practical terms, taxpayers who have remaining units and embedded basis as of the transition date must determine how that basis is attached to specific wallet or account pools.
If a taxpayer historically relied on universal pooling but does not perform an explicit allocation or transition consistent with Rev. Proc. 2024-28, structural risk emerges. As broker reporting becomes integrates, mismatches between broker-reported activity and internal inventory records become more likely. Without documented allocation, the taxpayer may be unable to produce wallet-level inventory support upon request.
We analyze the allocation mechanics in detail in our review of the Rev. Proc. 2024-28 digital asset allocation framework.
Missing Data, Blockchain Forensics, and the Evidentiary Standard
Digital asset reconstruction rarely begins with a pristine data set. In practice, historical accounting gaps are common, and understanding the source and limits of missing data is essential to building a defensible ledger.
Common missing data scenarios include exchange shutdowns, mergers, and token delistings that eliminate access to historical trade records. API access limits, account suspensions, or lost credentials can prevent retrieval of complete transaction history. CSV exports frequently omit critical data fields such as partial fills, fee breakdowns, internal ledger transfers, or canceled order adjustments. In self-custody contexts, taxpayers often fail to maintain a comprehensive address inventory, leading to fragmented wallet history and unidentified counterparties. On-chain data itself may contain gaps at the indexing level, particularly on Layer 2 or Layer 3 networks, or within application-specific interfaces that abstract underlying contract interactions. Each of these failure points can disrupt lot continuity if not identified and addressed methodically.
Blockchain forensics provides substantial, but not unlimited, reconstruction power. On-chain data can often establish wallet continuity, trace transfers between addresses, and confirm protocol-level interactions such as wrapping and unwrapping tokens, liquidity pool minting and burning events, staking deposits and withdrawals, and gas fee payments. Where wallet ownership can be verified, on-chain chronology can serve as a strong evidentiary backbone for lot movement and basis lineage.
However, on-chain data cannot fully resolve off-chain trade execution details. Centralized exchange order books, internal ledger netting, execution prices, fee rebates, and certain custody-level adjustments may never appear on-chain. Over-the-counter transactions, internal exchange transfers, or aggregated settlement events may leave limited public trace. Additionally, blockchain analysis alone cannot establish legal ownership or control of a wallet address without corroborating evidence. Suspected wallet clustering requires verification, not assumption.
Because of these limits, reconstruction must operate within an evidence hierarchy. Primary evidence includes exchange statements, complete trade fill reports, deposit and withdrawal logs, and on-chain transaction data tied to verified wallet addresses. Secondary evidence may include email trade confirmations, exchange support correspondence, bank or credit card funding records, and documented OTC confirmations. Tertiary evidence consists of contemporaneous taxpayer records, spreadsheets, screenshots, or signed representations, and must be evaluated carefully for credibility and consistency.
Where evidence is incomplete, reconstruction requires disciplined judgment. Unsupported assumptions, optimistic basis plugs, or unexplained inventory adjustments undermine defensibility. Instead, gaps should be identified explicitly, the available evidence described, and conservative treatment adopted where appropriate to reduce underreporting risk. These decisions should be memorialized in a formal assumptions register that explains the evidentiary limitation, the analytical reasoning applied, and the tax impact of the chosen treatment.
Missing data does not eliminate the obligation to reconstruct basis and transaction history. It shifts the exercise from pure calculation to documented evidentiary analysis. In an examination environment shaped by third-party reporting and automated reconciliation, the quality of that evidentiary framework often determines outcome.
Divergence Across Tax Software: Why “The Software Said So” Is Not an Audit Defense
Crypto tax software is a computational tool, and different platforms routinely produce materially different results from the same underlying transaction data.
Software platforms vary in how they treat missing acquisition history. These choices materially affect reported gain and loss. The same is true for internal transfer matching. Weak transfer logic can misclassify wallet-to-wallet movements as taxable disposals, inflating gain. Conversely, aggressive matching can conceal true taxable events.
Protocol classification introduces further divergence. One platform may treat a wrap or unwrap as a taxable exchange, while another treats it as a nonrecognition event. Liquidity pool minting and burning can be treated as taxable disposals or as capital contributions, depending on the software’s internal rules. Staking rewards may be timestamped at accrual, claim, or distribution depending on configuration. NFT mint mechanics, especially when intermediary mint wallets or aggregator contracts are involved can be interpreted differently across systems. Price sourcing methodologies and timestamp conventions also vary, affecting fair market value calculations and holding period determinations. Even fee treatment is inconsistent since some platforms capitalize fees into basis, others expense them, and some omit them entirely.
These divergences mean that two software platforms can produce different tax outcomes from identical transaction histories. The result is a risk that it can alter reported taxable income, holding periods, and carryforward inventory.
An additional operational problem compounds the issue. Not all crypto tax software provides tax-lot level reporting that shows exactly which acquisition lot was relieved upon disposition. Many platforms generate gain summaries and Form 8949 exports but do not produce a carryforward inventory file capable of being audited and rolled forward year-to-year. Without a defensible lot chain, there is no way to demonstrate basis continuity across tax periods.
The implication is straightforward. The ability to generate a return does not mean the reconstruction is defensible. If the taxpayer cannot produce a traceable lot-level inventory that explains how each unit’s basis originated and moved across years, the reporting position rests on computational output rather than substantiated accounting.
An audit-defensible crypto cost basis reconstruction requires independent reconciliation, explicit lot traceability, and documented evidentiary support regardless of the platform used. The methodology must stand on its own, the software should implement the methodology, not define it.
Specific Technical Complications in Crypto Cost Basis Reconstruction
Cost basis reconstruction in digital assets is not a simple accounting exercise. The technical architecture of blockchain systems introduces property identification, custody, and classification issues that do not exist in traditional brokerage environments
Internal transfers are among the most common sources of distortion. Movements between exchanges and wallets, or between self-custody addresses, must be matched precisely to preserve lot continuity. If transfer logic is weak, withdrawals may be misclassified as taxable disposals, creating phantom gain. Conversely, deposits without matched origin transactions may be treated as new acquisitions with unsupported basis. Multi-hop transfers, where assets move through intermediary wallets, bridge contracts, mint relays, or aggregators, add further complexity.
DeFi liquidity pool positions require analysis beyond surface-level token movements. When assets are deposited into a liquidity pool and LP tokens are minted, the tax classification depends on the protocol’s structure and the taxpayer’s reporting posture. Whether the minting of LP tokens constitutes a taxable exchange or a nonrecognition capital contribution can materially affect basis tracking. Impermanent loss economics, fee accrual within pools, and token appreciation must be disentangled so that realized events are distinguished from valuation fluctuations.
Staking and liquid staking arrangements create additional complications. Reward timing affects income recognition and subsequent basis. Reinvested rewards increase basis in the underlying asset and must be layered into the inventory system. Slashing events, where staked assets are reduced due to protocol penalties, may represent a loss or basis adjustment depending on the facts and characterization. Each scenario requires explicit documentation and consistent treatment across tax years.
NFT activity presents its own basis challenges. Minted NFTs require determination of acquisition cost, including gas fees and mint price. Secondary purchases must incorporate marketplace fees and royalties into basis calculations. Intermediary mint wallets or aggregator contracts can obscure the true acquisition flow if not traced carefully. Airdropped NFTs, allowlist distributions, and promotional drops raise questions about income recognition and basis establishment that must be resolved before future disposition.
Corporate and entity overlays further complicate reconstruction. Wallets are frequently commingled across individuals and entities without formal segregation. Intercompany transfers may require documentation of contribution, distribution, or sale treatment. In partnership contexts, crypto contributions and distributions affect capital accounts and outside basis, requiring coordination between digital asset lot tracking and entity-level accounting. Absent disciplined segregation and documentation, entity structures that are mismanaged can undermine the integrity of the entire reconstruction.
These technical complications demonstrate why crypto cost basis reconstruction cannot rely on generic assumptions or automated classification. Each category of activity must be analyzed within the framework of property taxation, custody mechanics, and protocol design. Without that depth, the resulting ledger may calculate numbers, but it will not withstand scrutiny.
Audit Defensibility: What the Cost Reconstruction File Must Contain
An audit-defensible crypto cost basis reconstruction is not just a calculation. It is a documented workpaper package capable of being handed directly to an examiner.
At minimum, the reconstruction file should include a complete data source inventory organized by platform and reporting period; a verified wallet and address inventory identifying control and ownership status; a transfer reconciliation schedule showing matched movements and clearly identified unresolved exceptions; and an assumptions register that explains any missing data, the evidence available, and the conservative treatment adopted. It should also contain a formal methodology memorandum describing the accounting method (universal or account-by-account), continuity decisions relative to prior-year reporting, and, where applicable, a documented Rev. Proc. 2024-28 allocation analysis including the transition snapshot, allocation rule applied, and supporting records. Finally, the file must include a lot-level inventory and carryforward schedule demonstrating basis continuity across tax years.
Certain conditions risk scrutiny such as high proceeds paired with minimal or unknown basis, large unmatched withdrawals or deposits, inconsistent treatment across years or platforms, significant DeFi activity without documented protocol-level classification, and a universal-to-wallet transition without a documented Rev. Proc. 2024-28 allocation are all likely to draw examination focus. A reconstruction that anticipates and documents these risk indicators is materially stronger than one that reacts to them under audit pressure.
When to Disclose and Why
Disclosure becomes relevant when a reporting position is materially assumption-driven, relies on interpretive classification in technical gray areas, or is likely to generate significant mismatch with third-party reporting such as broker statements.
Where a taxpayer adopts a non-obvious classification stance, such as the treatment of certain wrap or unwrap transactions, liquidity pool mint and burn flows, or complex protocol interactions, disclosure may support penalty protection and enhance credibility in the event of examination. The analysis should focus on whether the position would be readily understood from the face of the return or whether it depends on technical interpretation that warrants clarification.
When cost basis reconstruction relies on conservative assumptions due to incomplete records, those assumptions should be documented internally regardless of whether formal disclosure is made. Formal disclosure becomes a strategic consideration when the position moves from conservative gap-filling to interpretive or aggressive posture. The objective is not over-disclosure, but alignment between technical risk, documentation strength, and examination posture.
Common Practitioner & Taxpayer Mistakes
Several recurring errors undermine crypto cost basis reconstruction and expose taxpayers to avoidable risk.
- Treating software output as substantiation is the most common failure. A gain report is not a defensible ledger. Without lot-level traceability and reconciliation, the numbers lack evidentiary support.
- Failing to force transfer reconciliation breaks lot continuity. Allowing withdrawals to default to taxable disposals creates phantom gain and distorts inventory.
- Ignoring Rev. Proc. 2024-28 for legacy universal positions leaves basis unallocated in an account-level reporting environment.
- Producing returns without a carryforward lot inventory file is incomplete work. If beginning inventory cannot be tied to prior-year ending lots, continuity is broken.
- Undocumented assumptions weaken defensibility. Missing data must be identified, analyzed, and memorialized.
- Over-allocating basis when records are incomplete increases exposure. Conservative reconstruction strengthens audit posture; optimistic reconstruction does not.
Compliance in the Digital Asset Compliance Era
The digital asset market is transitioning from a largely voluntary self-reporting environment to a 3rd party reporting environment in which discrepancies are easier to detect than to explain. Broker reporting, automated reconciliation systems, and cross-platform data visibility shift the burden from computation to substantiation.
The appropriate cost basis reconstruction is the process that aligns with the taxpayer’s facts and prior reporting posture, maintains technical coherence across on-chain and off-chain data, adopts conservative treatment where evidence is incomplete, and is packaged in a form capable of withstanding examination.
Our crypto tax cost basis reconstruction services are designed to produce audit-defensible lot-level inventory systems rather than summary-level software outputs. Work with a digital asset accounting firm and Crypto CPA established in the early development of this market and built for sustained compliance as oversight continues to expand.
Crypto Cost Basis Reconstruction & Historical Accounting FAQ’s
What is crypto cost basis reconstruction and why is it necessary?
Crypto cost basis reconstruction is the process of rebuilding a taxpayer’s digital asset ledger at the tax-lot level so that every disposition can be traced to a documented acquisition with a defensible basis and holding period. Because digital assets are treated as property for federal income tax purposes, each unit sold, exchanged, or otherwise disposed of must tie back to a specific acquisition. Reconstruction becomes necessary when historical records are incomplete, transfers were never reconciled across wallets and exchanges, or prior returns relied on aggregated summaries rather than lot-level continuity. Without reconstruction, reported gain and loss may rest on inventory pools that cannot be substantiated under examination.
Can I just start reporting correctly this year without fixing past crypto tax years?
In most cases, no. Cost basis is cumulative and carries forward across tax years. Ending inventory in one year becomes beginning inventory in the next. If historical lots are misstated, future dispositions will draw from defective inventory, causing gain, loss, and holding period distortions to persist. Simply applying correct methodology to flawed beginning balances does not resolve embedded errors. Unless legacy holdings are fully disposed of and prior issues addressed, historical inaccuracies remain part of the reporting chain and may surface under audit or broker-level reporting.
How does Form 1099-DA affect historical crypto cost basis issues?
Form 1099-DA introduces broker-level reporting that increases visibility into digital asset sales. As proceeds reporting becomes standardized and more granular, discrepancies between broker-reported transactions and a taxpayer’s internal lot inventory become easier to detect. If historical basis is undocumented or improperly allocated, broker-reported dispositions may appear to lack support. This makes historical accounting and reconstruction a prerequisite for reconciling self-custody activity, cross-platform transfers, and broker statements in a defensible manner.
What happens if I am missing exchange records or wallet history?
Missing data does not eliminate the obligation to substantiate basis. Reconstruction must instead rely on an evidentiary hierarchy. Primary evidence includes exchange trade reports, deposit and withdrawal logs, and verified on-chain transactions. Secondary and tertiary evidence, such as email confirmations, funding records, and contemporaneous documentation, may supplement gaps. Where records are incomplete, conservative assumptions should be applied and memorialized in a formal assumptions register. Unsupported guesses or optimistic basis allocations increase exposure, particularly when digital records were reasonably retrievable.
Is crypto tax software enough to establish defensible cost basis?
No. Crypto tax software is a calculation engine, not a substantiation framework. Different platforms can produce materially different outcomes based on how they classify protocol events, match transfers, source pricing data, or treat missing acquisitions. Many systems do not produce a carryforward lot inventory file capable of demonstrating basis continuity across years. An audit-defensible reconstruction requires independent reconciliation, explicit lot traceability, documented assumptions, and a coherent methodology that can stand on its own regardless of the software used.
