I have a friend who has made some decent returns with crypto and now wants to cash out.
All the BTC he purchased was done anonymously using cash in hand.
The issue is that the government doesn't know he purchased these cryptos and he did not do clear record keeping of all his trades / profits over time.
My friends worried that if he tries to cash out into the tradition banking system (in order to purchase property) the authorities will freeze his account and seize the funds until sufficient evidence is shown proving where the $ came from.
Now my friend can just pay full capital gains % on the profits (no deductions) he withdraws into the traditional banking system, but where all the $ came from is still ambiguous.
Some $ was made trading, selling, gambling, airdrops etc etc.
What's the best course of action?
It depends on where your "friend" is tax resident.
Anyway, his only option is to come clean and to declare this income to the tax authorities.
One issue I can see is that part of initial funds were cash on hand. If those funds were not tax compliant, the following profit could be considered money-laundering of proceeding from crime. Your friend could be in a tricky situation.
Additionally, penalties will be charged. He could end up paying much more than the nominal tax rate on capital gains.
Good luck to him.