Why isn't anyone talking about how to report just one line item instead of all of their crypto trades on the tax return?

This post was inspired by The Absolute Fucking Impossibility of Reporting Taxes On This Shit (bitcoin, 2017) and How the fuck do I pay taxes on this shit (yield farming, 2021).

What if I told you that all you need to report was just ONE transaction?

You'll still pay taxes, but don't have to go through the reporting ordeal. The idea is courtesy of tax attorney Stewart Patton, u/taxtalkinguy here.

If you only have a few transactions, crypto taxes are simple enough. But if you do mining, staking, validating, yield farming, getting gaming rewards or numerous CeFi or DeFi short-term transactions, I think we all agree that proper reporting of all crypto transactions can be confusing, ridiculous or downright impossible, especially now with daily staking income, or gaming rewards issued every 10 minutes. I don't even want to think about flash loans or whatnot. And keep in mind that the IRS wants you to report each transaction on Form 8949, not just a summary.

There's a way out of this ridiculous crypto tax reporting mess:

1. Form a Controlled Foreign Corporation (CFC) in a jurisdiction without crypto reporting requirements
2. Trade/earn whatever rewards you want
3. Report all CFC income as one line item (technically called “Subpart F income”).

What's the catch?

1. The main catch is that all your profits will be taxed at the short-term capital gains rate (i.e. as ordinary income) when they are repatriated to you (a US person) from the CFC. But all those types of transactions mentioned above, are short-term or income, so you don't lose anything. This isn't a way to reduce your taxes, but just to almost completely eliminate the reporting requirements.
2. If you plan to HODL, you should HODL in a different account, not as the CFC. Use the CFC only for short-term trades and whatever the IRS might deem income anyway (mining, staking, validating etc.)
3. There's an upfront cost to set up the CFC. This isn't for the average crypto investor.
4. "If you have a loss overall, it will be trapped in your offshore company. It won’t be available to offset losses from other sources until you liquidate the offshore company, at which point it will be a capital loss."
5. I don't think you'll be able to deduct trading fees or other types of investment income.
6. When you start with the CFC, you'll want to fund it with positions from your personal account that you've been holding for less than a year, and don't plan to hold onto for longer than a year. That's because for those personal positions, you can hold longer-term and optimize the accounting method beyond FIFO or LIFO, to reduce your gains. For the CFC, the ordinary income tax rate will apply.

Extra bonuses

• You'll be legally allowed to open an account on exchanges that ban US customers, by signing up using the foreign corporation
• You can also open accounts with exchanges as the CFC to protect your privacy

This is an example of KYC requirements for a corporation.

Thoughts? Has anyone done this?