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burdensome nature of these yearly basis shares for the full year, to determine her 2020 ($192,400) less BTC pro rata sold
and expense computations. amount of BTC per share paid out, she to cover sponsor expenses ($3,380.93)
must subtract out of the total amount = $189,019.07. Her adjusted BTC
Example: Investor A purchases the BTC sold during the period of the balance also can be calculated in the
20,000 shares of a bitcoin (BTC) year she did not own any shares of the event she buys or eventually sells
trust on Feb. 10, 2020, at a price fund. In her case, she subtracts out the shares at a later date. The adjusted
of $9.62 per share for a total cost January BTC paid out (0.00000164) shareholder’s BTC owned at Dec. 31,
basis of $192,400. This is her only plus the pro rata share of BTC paid out 2020, is 19.00388276 BTC: BTCs
purchase into the trust for the in February prior to the purchase date purchased with initial investment
year. At the beginning of 2021, of Feb. 10, 2020 — 10 days out of 29 (19.3438 BTC) less BTC pro rata sold
she receives the year-end 2020 days for the month, multiplied by the to cover sponsor expenses (0.33991724
grantor trust tax information and aggregate February amounts sold, or BTC) = 19.00388276 BTC.
accompanying gross proceeds file, (10 ÷ 29) × 0.00000152. This results in At this point, it is important to note
which lists the daily BTC owned a BTC per share paid out for Investor A that, due to these monthly sponsor
per share for the trust as well as the in 2020 of 0.00001699. expenses, a taxpayer’s basis in these
number and proceeds for BTC that Multiplying the BTC per share investment trusts will automatically
were sold throughout the year to amount by the 20,000 shares owned decrease over time. Thus, even if
cover the trust expenses. by Investor A yields a pro rata share a taxpayer has only a single initial
of BTC paid out attributable to her of purchase, and his or her investment
On the purchase date, as previously 0.33991724 BTC. This is her share of neither appreciates nor depreciates in
noted, Investor A acquired 20,000 BTC sold to pay her yearly apportioned value, there will most likely be a gain
shares, and the gross proceeds files list sponsor fees. This also represents when the taxpayer eventually sells the
an ownership amount of 0.00096719 her yearly investment management investment, which will be taxed at
BTC per share; therefore, her pro expenses, which, prior to the law the taxpayer’s applicable capital gains
rata share of BTC owned at the known as the Tax Cuts and Jobs Act rate. This may not be fully understood
date of acquisition is 19.3438 BTC: (TCJA), P.L. 115-97, would have been by investors in these trusts who
0.00096719 per share × 20,000 shares deductible on her personal income have not accounted for yearly basis
= 19.3438 BTC. This establishes the tax return. adjustments, leading them to believe
starting basis for Investor A and her Once her share of BTC sold to cover that a sale will result in a loss, when
accompanying pro rata BTC ownership the sponsor expenses is determined, it will result in a gain due to the basis
allotment. Her starting basis on Feb. Investor A’s proportional cost basis for adjustments. Therefore, it is crucial that
10, 2020, is $192,400: 20,000 shares × these BTC can be determined based on tax advisers make clients aware of the
$9.62 per share price = $192,400. the value of her initial investment. This yearly basis adjustments so they can
The next step is to calculate the is accomplished by taking the BTC carefully consider their sales against the
pro rata amount of BTC sold by the she sold, dividing it by the total BTC totality of their financial position for a
trust and attributed to Investor A that she owned, and multiplying the result given year.
was used to pay for sponsor fees and by her cost basis for the total initial Now that Investor A’s year-end basis
administrative and custodial expenses purchase. This results in a cost basis for has been determined, the dollar value of
determined at the trust’s inception, Investor A’s share of the BTC sold of her portion of the sponsor expenses and
noted on its individual fact sheet and $3,380.93: (BTC pro rata sold to cover the gain or loss from her portion of the
payable to Grayscale, the sponsor. yearly sponsor expenses [0.33991724] ÷ BTC sale to pay the expenses can be
Because the trust has no other assets BTC pro rata ownership [19.3438]) × calculated. To calculate the dollar value
outside of the underlying cryptoassets, cost basis ($192,400) = $3,380.93. of her portion of the sponsor expenses,
these fees must be paid through With the amounts determined again take a pro rata approach and pull
conversion of the currencies into fiat. above, the year-end basis for Investor A from the gross proceeds file the total
To begin this calculation, first look can be calculated. This is accomplished proceeds per share of BTC sold by the
at the total amount of BTC per share by subtracting the cost basis for the pro trust, which for 2020 was $0.21804604.
paid out as listed on the gross proceeds rata share of sponsor expenses from As with expenses that occurred
file. In this example, the total amount the initial purchase cost. Her adjusted outside the holding period of her
for the year is 0.00001916 BTC. shareholder’s basis at Dec. 31, 2020, purchase, gross proceeds amounts that
Because Investor A did not own her is $189,019.07: Cost basis on Feb. 10, occurred in January ($0.01419641)

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