Welcome back to Inside Basis, our monthly roundup of Hash Basis happenings, what’s new in the crypto industry and practical crypto accounting tips you can use on the job.

Before we dive in, we wanted to give our readers the technical definition for the name for this newsletter, Inside Basis (because of course, we’re a nerdy accounting firm and had to use a pun for our newsletter!).

In partnership accounting and tax, there’s the concept of “outside basis” and “inside basis.” When a partnership forms, the partners contribute assets such as cash, land or crypto. These assets have an adjusted cost basis (original price) attached to them and this directly impacts the value that is contributed to the partnership.

“Outside basis” means the cost basis each individual partner has in the partnership (i.e. what’s the cost basis of the assets they gave to the partnership?). “Inside basis” refers to the basis the partnership itself (the legal entity) has in the contributed assets. We need two separate terms for these concepts because outside basis often doesn’t equal inside basis, especially if non-cash assets were contributed. For an example of this dynamic, see here.

Hash Basis Beat

What’s new in the Hash Basis universe?

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Using Python to Automate Form 8949

We released python code to make filling out Form 8949 much easier! As we were working on corporate tax returns for 2022, we noticed that most enterprise crypto accounting softwares didn’t automatically populate Form 8949 and Schedule D - they prepared a csv of realized gains and losses according to your cost basis methodology, but a manual step was still needed to translate that data to the IRS form. After twenty minutes of copying and pasting between tabs, we realized there had to be a more elegant solution.

Enter Python and Perplexity AI!

As it turns out, there’s a handy python library that lets you ingest csv data and write it directly to a pdf. Pdfs are composed of bite-size interactive elements that can be organized into a list (hint: they’re the little boxes in blue that highlight when you hover of them). By looping through this list and the csv of short and long term gains/losses, the data from the csv can be carried over and summed up effortlessly.

For a deeper dive on the program and our learnings, read our article and watch our loom video below. And if you’re not code-savvy, no worries - we’re happy to help you transform your 8949 data once tax season rolls around again!

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We Read Crypto Twitter

(So You Don’t Have To)

Headliner news to pay attention to for crypto accounting & finance professionals

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IRS Releases 2023 Tax Form Drafts

Note: we’re so excited and hopeful about the court ruling that came out last week stating XRP is not a security if sold on exchanges to the public (however, it’s still a security if sold to institutional investors). This is probably papered all over your Twitter & LinkedIn feeds, so we wanted to share some other news this month!

In a recent post by Crypto Nik, he shared the recently released drafts of Form 1065 (partnership return), Form 1120-S (return for S corporations) and Form 1120 (return for C corporations) for 2023 - and surprise, surprise, the IRS wants more detail on your digital asset activity!

On Schedule B, this question is nestled at the very bottom:

At any time during this tax year, did the partnership [corporation] (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or financial interest in a digital asset)?

This query mirrors the question on the personal return, Form 1040, that was introduced in prior years. The IRS isn’t sleeping on digital assets - and evidenced by their new budget of $78 billion (over ten years), they’ll be hiring a fleet of enforcement agents to make sure Uncle Sam gets a cut of your on-chain activity.

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Basis Bytes

Practical tips & tricks for all the crypto accountants out there (we know, there’s like 5 of us!)

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Checking Historical Token Balances with Etherscan

Etherscan is the OG block explorer that’s been providing crypto users with clarity about their on-chain transactions and insights into the supercomputer that is Ethereum. Founded in 2015, Etherscan has developed offshoots of their flagship explorer and also has scanners for Avalanche (c-chain), Polygon, Binance and various Ethereum L2 like Optimism and Fantom.

In case you’re unfamiliar with block explorers, think about them as the “Google” for a given blockchain. They not only showcase details about wallets addresses, but they also have in-depth info related to confirmed blocks, active validator sets (if a PoS chain), NFTs and governance proposals.

Etherscan is particularly 🔥 because of their descriptive transaction logs and “transaction action” panel. It’s an accountant’s nirvana since most of the time, it’s possible to determine the token flow (which is necessary to get the accounting correct).

Our other all-time favorite feature of Etherscan is their token balance checker! Check it out here.

Why this is incredible

Pulling “point in time” balances from on-chain is paramount for accountants and auditors (i.e. you have to be able to reconcile all historical transactions to an ending balance). However, this crucial datapoint is often missing and/or unreliable. We’ve had great success with using the Etherscan checker to verify balances for ETH and ERC-20 tokens. And this feature is available on all the Etherscan products (i.e. see Avalanche’s balance checker here).

How to use it

Using Ethereum as an example, head to the balance checker tool. Let’s say we want to check the balance of MANA for 0xBd13eA41066ed16d075B86B3082b3369814a1012 on 12/31/22.

• Select “Token (ERC-20)”
• Enter the account address (0xBd13eA41066ed16d075B86B3082b3369814a1012)
• Enter the contract address (0x0F5D2fB29fb7d3CFeE444a200298f468908cC942)

💡To find the token contract address, google “{token symbol} Etherscan.” The first link that appears will be the Etherscan page for the token. The top-right corner will show the contract address.

• Filter by either date (12/31/22) or block number (16309684 —> I got this by running a Bitwave balance report)
  

And there you have the ending balance for MANA for 2022! 🎉