What can bank statements, exchange orders, wallet addresses, TxIDs and OTC receipts each prove? When records are missing, how can the evidence chain for the cost of digital assets be reconstructed?
Direct answer
Where transaction records are incomplete, the cost of virtual currency is not automatically calculated as zero, but it is necessary to form a mutually corroborating evidence chain using bank deposits, exchange orders, deposit and withdrawal records, wallet ownership, on-chain TxIDs and OTC receipts. Where a taxpayer fails to provide complete and accurate vouchers of the original value of property and the original value cannot be determined in accordance with the regulations, the competent tax authority may assess the original value of the property.
A payment of RMB 1 million from the sale of coins enters a bank account. Some people worry: should the entire RMB 1 million be treated as income and taxed? Others believe: they invested RMB 900,000 in earlier years, so they made a profit of at most RMB 100,000.
Both conclusions may be reached too early。
Bank statements can only prove that the account received RMB 1 million; they cannot directly calculate how much was actually earned.
If the coins passed through multiple platforms and wallets, were exchanged for other coins, crossed chains, or were sold through OTC, the full trail must first be clarified.
The previous two articles respectively discussed the regulatory and tax boundaries of digital assets, and why, after receiving a reminder regarding overseas income, one cannot directly pay supplementary tax based on bank statements. This article will not elaborate further on tax categories and regulatory policies, but answers a more specific question: to explain cost, what materials need to be prepared? When digital asset transaction records are incomplete, how should one trace back?
First, remember three points:
- Incomplete materials do not mean that cost will necessarily be calculated as zero;
- Having only a few screenshots does not mean that cost will necessarily be recognized;
- Proof of virtual currency cost usually does not rely on a single "key voucher," but on multiple materials that correspond with one another.
I. Why a single bank statement or a single on-chain record is not enough
The tax authorities mainly seek to clarify: why the funds arose, which year they belong to, the original value of the property, and how the gains are calculated.
Banks and payment institutions are more concerned with: where the money came from, whether the transaction is genuine, and what relationship the actual payer has to the coin-selling transaction.
A blockchain explorer can show wallet addresses, timestamps, quantities and TxIDs, but it cannot show who owns a wallet, nor whether a given transfer was a purchase or sale, a loan, a collection on behalf of another, or a transfer between two wallets belonging to the same person.
Therefore, what is truly useful is not a single screenshot, but material that allows a person to follow the trail and understand clearly: where the money was invested, where the coins were purchased, to which wallet they were later transferred, and finally how they were sold and fiat currency received.
II. What each of the six categories of materials can prove
(1) Bank transfers and early coin-purchase records
Can prove: the time, amount and paying account of the original capital contribution.
Cannot prove on their own: which specific coin was purchased, how much was purchased, and whether the assets later sold are the same batch.
Recommended supplementary materials: the corresponding exchange orders, over-the-counter purchase agreements, deposit records and withdrawal records.
(2) Exchange orders and account statements
Can prove: the transaction time, the currencies bought and sold, the quantity, the execution price and the fees charged by the platform. Platforms often refer to two assets traded against each other as a "trading pair"; for example, "BTC/USDT" means using USDT to buy or sell BTC.
Cannot by itself prove: who actually controls the account, where the deposited funds originally came from, or where the assets on the platform were subsequently transferred.
Recommended supplementary evidence: real-name account information, login or binding information, bank payment records, and platform deposit and withdrawal records. If an account is registered in an individual's name while the funds actually came from a company or another person, the relationship between the parties should also be explained.
(3) Deposit and withdrawal records and on-chain TxIDs
"Depositing coins" means transferring coins into the platform; "withdrawing coins" means transferring coins out of the platform. A TxID is the identification number of each on-chain transaction.
Can prove: how a given batch of assets entered a wallet from an exchange, or returned from a wallet to the platform; and whether the time, coin type and quantity can be matched.
Cannot by itself prove: the legal ownership of the wallet, the reason for the transfer, or whether fiat currency was paid offline.
Recommended supplementary evidence: a statement of wallet ownership, platform account materials, and contracts or transaction communication records.
(4) Wallet ownership materials
Can prove: who is able to control the wallet, for example wallet creation records, platform binding information, signature verification and internal management records.
Cannot by itself prove: that the economic interest in the assets necessarily belongs to the person operating the wallet. An employee may manage a wallet on behalf of a company, and a founder may also hold assets on behalf of a project entity.
Recommended supplementary evidence: actual capital contribution records, contracts, company resolutions, accounting records, and an explanation of the division between company and personal assets.
(5) Coin exchange records, platform fees, withdrawal fees and Gas fees
Can prove: why the asset name or quantity changed. For example, BTC was exchanged for USDT, or, after fees were paid, the amount actually received was less than the amount transferred out.
Cannot prove on its own: these fees can of course be deducted as tax costs.
Recommended supplementary evidence: a breakdown of the fees, when they were incurred, the corresponding transactions and platform rules, and an explanation of whether the fee was incurred at the acquisition, holding, transfer or sale stage.
Platform fees, withdrawal fees and Gas fees can explain changes in asset quantity and should also be fully retained.
However, the "reasonable expenses" referred to in Article 16 of the Implementing Regulations of the Individual Income Tax Law are the relevant taxes and fees paid in accordance with regulations when property is sold. Whether platform fees and on-chain transfer fees can be included in the original value of the property or deducted in the calculation currently lacks uniform special rules addressing modern crypto assets, and should be determined in light of the stage at which the fee was incurred, its direct connection with the disposal in question, and the position of the competent tax authority.
(6) OTC orders, communication records and bank receipts
OTC can be simply understood as selling coins through platform merchants or trading institutions and receiving fiat currency.
Can prove: which coin sale corresponds to which bank credit, and can also explain why the names of the coin-sale counterparty, the platform merchant and the actual payer may differ.
Cannot prove on its own: how the digital assets were originally acquired, what the early purchase cost was, and that the entire fund path of course complies with regulatory requirements.
Recommended supplementary evidence: transaction confirmations, digital asset transfer-out records, third-party payment explanations, settlement statements, and a reconciliation table of payment amounts against coin sale quantities.
III. When transaction records are incomplete, reconstruct in five steps
Step one: list all accounts
List the trading platforms, wallets and bank accounts used on an annual basis, and indicate who registered them, who controlled them, and whether the assets belonged to an individual or a company. Where this cannot yet be clarified, mark it as "to be verified" for the time being.
Step 2: First identify the starting point and the endpoint
One end consists of the records of the earliest fiat currency invested or digital assets acquired, and the other end consists of the records of the final sale of coins and receipt of fiat currency. First fix the two ends, then trace toward the middle.
An early investment of RMB 900,000 does not mean that all of this RMB 900,000 corresponds to the assets sold in this instance. Losses, consumption, coin exchanges or other sales may have occurred in between.
Step 3: Use TxIDs to connect platforms and wallets
Verify the time, coin type and quantity in the platform deposit and withdrawal records against the records in the blockchain explorer. Where cross-chain transactions, platform aggregation or multiple consolidated transfers are encountered, they should be marked separately, so as to avoid mistaking transfers between one's own wallets for sales, and also to avoid double-counting the same batch of assets.
Step 4: Classify each record
At a minimum, distinguish: buying coins with fiat currency, coin-to-coin exchanges, transfers between one's own wallets, receiving remuneration in coins, selling coins externally and receiving fiat currency, as well as loans, collections on behalf of others or return of principal.
Coins transferred in are not necessarily income; coins transferred out are not necessarily a sale.
Step 5: Truthfully identify information gaps
Where a platform has closed or historical data cannot be exported, bank records, emails, on-chain data, chat records and historical market prices may be used to supplement one another, while explaining the sources of the materials, the RMB conversion method and the issues that still cannot be confirmed.
Historical market prices and ex post estimates are mainly used to explain RMB conversion or to establish a calculation range; they generally cannot by themselves prove the actual purchase price, nor can they replace property original-value evidence such as exchange orders and bank payment records.
A reconciliation schedule may be prepared after the fact, but the data in the schedule should be traceable to the original materials. Do not fabricate contracts, alter notes, or create false screenshots.
Note one boundary: incomplete materials do not necessarily mean the cost is zero.
Article 16 of the Implementing Regulations of the Individual Income Tax Law provides that the original value of other property may be determined by reference to the methods used for property such as marketable securities; where a taxpayer fails to provide complete and accurate vouchers for the original value of the property and the original value cannot be determined in accordance with the regulations, the competent tax authority shall assess the original value of the property.
Guoshuihan [2008] No. 818 also provides that where an individual cannot provide vouchers for the original value of online virtual currency property, the competent tax authority shall assess the original value, and it does not directly provide that the cost is uniformly zero.
However, that official reply was formulated in 2008, and its original text was directed at "players' virtual currency," which is not entirely the same as modern crypto assets such as Bitcoin and stablecoins today. How it applies specifically still needs to be determined in light of the current tax law, the facts of the transaction, and the case-specific position of the competent tax authority. The current publicly available rules also do not prescribe a uniform first-in-first-out, weighted-average, or fixed assessment ratio for modern crypto assets.
IV. Establish a reviewable underlying transaction schedule
It is recommended to organize by year and record at least:
The underlying schedule itself is not a voucher for the original value of property. Its function is to place digital asset transaction records scattered across banks, trading platforms, and blockchains onto the same timeline, so that the source of each figure can be found as far as possible.
V. Frequently asked questions
- Without exchange orders, can bank statements prove cost?
They can only prove that money was paid; they cannot by themselves prove what was purchased, the quantity, or whether the asset sold this time is the corresponding asset.
- Can an on-chain TxID by itself prove that a wallet belongs to the person?
No. A TxID proves that a transfer occurred between addresses, but wallet ownership still requires support from signature verification, platform binding, management records and evidence of actual funding.
- How can transaction records be supplemented after a platform shuts down?
You can start with bank records, historical emails, downloaded files, screenshots and on-chain data, first establishing the inputs and returns, then tracing back through intermediaries. Parts that cannot be confirmed should be identified as gaps; evidence must not be fabricated.
- If the materials are incomplete, is the cost necessarily treated as zero?
No. Where the original value cannot be determined in accordance with the rules, it is assessed by the competent tax authority; however, there is no nationwide unified public assessment ratio for modern crypto assets, and self-estimation will not necessarily be accepted.
Conclusion
First, clarify the origins and history of these assets:
For historical digital asset transactions, the hardest part is usually organizing and answering four questions: where these assets came from, who they actually belong to, how the cost was formed, and why they ultimately became this bank deposit.
You can first self-check three things:
Whether you can list all the platforms and wallets used by yourself or the relevant entities;
Whether you can connect the main purchases, wallet transfers and final receipts;
Whether you can distinguish transfers between your own wallets, remuneration received in crypto and sales of crypto to others.
If two or more of these items cannot be clearly explained, subsequent filings or explanations of source of funds will usually require a reconstruction of the transaction facts first.
Where formal tax notices, missing platform data, commingling of corporate and personal assets, third-party payments in OTC transactions, or bank card risks are involved, it is advisable to verify the facts and evidence before submitting explanations or confirming the tax treatment.
A simplified version of the Digital Asset Cost Evidence Checklist is appended to this article for readers to use in identifying gaps in their materials.
Disclaimer: There remains a lack of complete and unified special published rules on the income nature, cost aggregation and expense treatment of modern crypto assets; specific treatment should be determined in light of the taxpayer, the reason for acquisition, the transaction year, the fund flow path, the evidentiary circumstances and the case-specific position of the competent tax authority. This article does not correspond to any specific transaction and does not constitute legal or tax advice for any individual case.
