How can the IRS know about bitcoin that shouldn't be taxed (lost, stolen, gifted away, etc)?

AnonymousIstari
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How can the IRS know about bitcoin that shouldn't be taxed (lost, stolen, gifted away, etc)?

With KYC laws, most bitcoin is tied to an identity the US government could figure out (I get there might be exceptions with ATMs or p2p purchases). So the IRS can then follow that wallet and its value but how do they know where the bitcoin goes from there? A few scenarios:

  1. I sell it for profit. I'd claim that as a taxable gain, sure. Easy case.

  2. I attempt to purchase something and accidently send it to the wrong address. That isn't a capital gain but how would I prove that to the IRS?

  3. I attempt to purchase something and get scammed and a scammer runs off with my bitcoin. How does the IRS know I was scammed and didn't legitimately obtain some goods in return?

  4. I gift family members small amounts of bitcoin. How does the IRS know I am not in control of the wallets I sent it to?

  5. I attempt to move money between wallets and make a typo and send it to the wrong place. How do I prove I actually lost it and don't secretly have the key to the wallet(s) it ended up in?

In summary, it seems like we could be taxed for all crypto we bought regardless of what happens to it (legitimate capital gain or completely lost) because we will never be able to prove it isn't still in our possession.

Am I missing something?

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