Accounting for CryptoCurrency

1. 1
Date: 02-06-2021
To,
Erez Eyal Eng
Dear Sir,
As per the offer letter dated 26th
May, 2021, we have prepared the profit & loss of your trading
in Cryptocurrency for year 2013 along with Form 1099 reporting.
This report has been prepared based on the analysis of data provided by you along with public
data for the prices of various crypto currencies on different date.
This document is intended solely for the information and use of the Mr. Erez Eyal Eng and his
accountant; is not intended to be and should not be used by another other than the specified
parties or as agreed upon in the offer letter. We assume no responsibility to any user of the
document other than the above designated persons. Any other persons who choose to rely on
our report do so entirely at their own risk.
We would like to take this opportunity to thank you for the co-operation and assistance
received by us in the execution of this assignment. If in case of any queries or clarifications,
please do not hesitate to reach out to us at Upwork.
Regards
CA Piyush K Gupta

2. 2
Contents
Report Statistics ……………………………………………………………… 1
Scope & Limitations of Assignment ………………………………………… 4
Law Reference & Methodology
- Taxability of Cryptocurrency transactions …………………………. 5
- Tax Events for paying tax in digital currencies …………………….. 6
- Tax Liability Calculation …………………………………………….. 6
- FORM 1399 ……………………………………………………………. 7
Profit & Loss Account for the Year ended 31st December, 2018 …………. 10
FORM 1399 Reporting ………………………………………………………. 11

3. 3
Report Statistics
Particulars Details
Client Name Erez Eyal Eng
Address Israel
Head of Assignment CA Piyush K Gupta
Team Members CA Shubham Agarwal, CS Kashi
Balakrishnan, Kinjal Gupta
Period of report From 01-01-2013 to 31-12-2013
Date of Commencement of work 26-05-2021
Date of Completion of work 27-05-2021
Date of Final report 28-05-2021

4. 4
Scope & Limitations of Assignment
Scope
To prepare profit & loss account of the crypto trading from year 2013 till year 2020 along
with Form 1099.
Limitations of the Assignment
• The prices of the Cryptocurrencies deposited or withdrawn from account is not
available for the specific time on particular date. Opening and closing price on
particular data is available.
The average of opening and closing price of the currency for specific date is taken
for seeking the value of crypto currency.
• In some cases, the prices of cryptocurrency are not available in New Shekel (NIS).
In that case, price of crypto currency to USD has been taken and then converted
into NIS.

5. 5
Law Reference & Methodology
We have taken reference of the following sections and notifications of law for executing
for this assignment: -
Taxability of Cryptocurrency transactions
Although virtual currencies are not recognized as actual currency by the Bank of Israel,
the Israel Tax Authority (ITA) has proposed that the use of virtual currencies should be
considered as a “means of virtual payment” and subject to taxation.
Specifically, for the purpose of income tax and value added tax requirements, virtual
currency is viewed as “an asset” and is taxed in accordance with relevant transaction
classifications under the Income Tax Ordinance (New Version), 1961, and the Value
Added Tax Law, 5736-1975.
Accordingly, unlike a regular currency, the Israel Tax Authority will regard an increase
in the value of a cryptocurrency as a capital gain rather than an exchange fluctuation,
making it subject to capital gains tax.
Individual investors will not be liable for value-added tax, but anyone engaging in
cryptocurrency mining will be classified as a “dealer” and subject to VAT, according to
the circular.
Anyone trading as a business will be classified as a “financial institution” for tax
purposes, meaning that they will be unable to reclaim VAT on expenses but will be
subject to an extra 17 percent “profit tax” applied to financial institutions.
Treatment in report - “Based on discussion with Erez Eyal Eng, he is not engaged in
Crypto Mining. Further, he is trading in Crypto currency in individual capacity and not
in the form of corporation or sole proprietorship.”

6. 6
Tax Events for paying tax in digital currencies: -
• a crypto sale for Fiat
• Crypto payment for products or services
• crypto exchange in another crypto
• Crypto mining
• cryptocurrency payments
• Realising interest in cryptocurrencies for loans
What does not count as a tax event?
• Buy crypto (fiat - SHEKEL/ USD, etc.) and maintain it.
• Transfer of crypto between two wallets in your possession.
• Transfer a crypto you own from your account to another account of yours.
• holding currencies such as Bitcoin in a digital wallet.
Treatment in report - “Based on discussion with Erez Eyal Eng, he is engaged in Crypto
Sale for Fiat and Crypto exchange in another crypto only. No payment in cryptocurrency
is made for purchase of product or services.”
Tax Liability Calculation
• When one has the overall information about tax events throughout the tax year, it's
time to find out if he/she had any losses or profits from transactions made
throughout the year. For this, he/she have to go through each transaction, and
determine the base rate at which it was made and which pairings should be added
to it, in order to see if there is a wind or loss from the transaction, that is – whether
the currency is sold at a value higher than the value at which it was purchased –
and then there is a taxable profit, or not – and then there is a loss.
• If one bought a large quantity of digital currencies at different times during the
year and sold only a few of them during the year, at that time cost of digital
currencies is calculated using FIFO or LIFO method.
• FIFO means the first currency purchased is the first to be sold – and the base rate
will be the rate at which the old coin hold is purchased. LIFO means that the last
coin purchased is the one sold. The common and accepted methodology of the Tax
Authority for determining the base rate for calculating the profit from the
transaction is FIFO, so in most cases this will be the form of calculation that is
recommended to use.

7. 7
• In conversion transactions between crypto and crypto, the sales rate will be equal
to the crypto exchange rate received at the time of sale.
Treatment in report – “While calculation profit & loss, we have used First in
first out method (FIFO) of costing which is acceptable by Israel Tax Authority.”
FORM 1399
Form 1399 is also called the "Notice of Asset Sale and Tax Calculation" form.
That joins the General Annual Report to the Tax Authority which is Form 1301.
The taxation on activity in digital currencies is a capital gains tax, which is charged
on profits generated from the activity. According to the position of the Tax
Authority, digital currencies are an "asset".
Accordingly, profit from activity in digital currencies is not obtained from rate
changes, but rather an event that occurred during the year in the holding of the
currency, first and foremost the realization of the holding: the sale or conversion
of the currency. Therefore, the annual report to the Tax Authority must be attached
to Form 1399, which details changes in the maintenance of digital currencies.
Treatment in our report – We have provided transaction wise reporting to be
made in Form 1399. For each year, 1399 reporting is attached with report.

8. 8
Form 1399 Format

9. 9
Transaction wise reporting in form 1399

10. 10
Profit & Loss Account for the Year ended 31st
December, 2018
Particulars Debit Amount Particulars Credit Amount
Opening Stock of Crypto
Currency:
Sale of Crypto
Currency:
- BTC - - BTC -
- BCHABC 16,076.42684 - BCHABC 5,750.254250
- BTG 13,534.36176 - BTG 792.020000
- BCHSV - - BCHSV -
- ETH - - ETH -
- LTC 1,753.732757 - LTC -
Total opening Stock 31,364.52136 Total Sale 6,542.27
Purchase of Crypto
Currency:
Withdrawal of Crypto
Currency:
- BTC 88,018.91568 - BTC 0
- BCHABC 11,758.94334
- BTG -
- ETH 1,577.446217 Closing Stock of Crypto
Currency:
- LTC 3,235.1151 - BTC -
Total Purchase 1,04,590.420345 - BCHABC 20,965.30174
- BTG 12,485.36177
Deposit of Crypto Currency: - BCHSV 1,683.016721
- BCHSV 1,683.016721 - ETH 1,577.446217
- LTC 4,988.847857
Total Closing Stock 41,699.974305
Loss during the year -89,395.70987

11. 11
FORM 1399 Reporting
Amount to be reported in various columns of Form 1399
Particulars Amount
Total Sale Value 6,542.274250
Total Cost 95,937.984125
Inflationary Amount 0
Nominal profit/Loss -89,395.70987
Transaction wise Profit & Loss table to be attached with Form 1399.
Transaction
Numbers
Inflationary
Sum
Cost Change Base
Asset
Buy date Sale date
7 0
6,870.068443 5,750.254250 BCHABC 19-Dec-17 20-Jan-18
1 0
1,048.999999 792.020000 BTG 26-Dec-17 20-Jan-18
1 0
5,823.854400 - BTC 20-Jan-18 20-Jan-18
1 0
16,494.958475 - BTC 05-02-2018 05-02-2018
1 0
45,356.358756 - BTC 19-12-2018 20-12-2018
2 0
20,343.744052 - BTC 20-12-2018 21-12-2018
Total 95,937.984125 6,542.274250