is there anyway for them to keep track of how much u originally bought the bitcoin for? i mean theres no way to prove if u bought for .01$ or 1200$ ? right?
That's what I was thinking. Say the IRS says anything about spending btc, then the person just says they bought in at $1200 and writes off the loss on their taxes.
Were you audited, you would have to prove that you bought it at $1,200. Otherwise, the best case scenario for you will be if they assume you got it for free and don't hit you with a tax penalty.