Lot-Based Accounting
CapSign uses lot-based accounting (ERC-7752) to track every token's acquisition date, cost basis, and origin - essential for tax reporting and regulatory compliance.
What is a Lot?
A lot is a group of tokens with the same:
Acquisition date - When you got them
Cost basis - What you paid per token
Payment currency - What currency you used
Transfer type - How you acquired them
Why Lots Matter
Tax Reporting
When you sell tokens, you need to report:
Capital gain/loss = Sale price - Cost basis
Holding period = Sale date - Acquisition date
Long-term vs short-term = > 1 year or < 1 year
Lots provide all this data automatically.
Tax Optimization
With multiple lots, you can choose which to sell:
FIFO - First In, First Out (sell oldest first)
LIFO - Last In, First Out (sell newest first)
Specific ID - Choose exact lots to sell
Highest cost - Sell highest cost basis first (minimize gains)
Regulatory Compliance
Securities regulations require:
Accurate record keeping - Know when each share was acquired
Holding period tracking - For Rule 144, Reg D restrictions
Cost basis reporting - For IRS Form 8949
Lots make compliance automatic.
How Lots Work
Lot Creation
A new lot is created when you:
Receive tokens from an offering
Are issued tokens by an issuer
Purchase tokens in a secondary sale
Receive a gift of tokens
Each event creates a separate lot with its own metadata.
Example
You buy Class A shares three times:
January 1, 2024:
Buy 100 shares @ $1.00 each
Lot 1: 100 shares, $1.00 cost basis, Jan 1 2024
March 1, 2024:
Buy 50 shares @ $1.50 each
Lot 2: 50 shares, $1.50 cost basis, Mar 1 2024
June 1, 2024:
Buy 200 shares @ $0.75 each
Lot 3: 200 shares, $0.75 cost basis, Jun 1 2024
Total: 350 shares across 3 lots.
Viewing Lots
In CapSign, navigate to a token to see:
Total balance - All lots combined (350 shares)
Individual lots - List of each lot with details
Cost basis - Per-lot and weighted average
Acquisition dates - For holding period calculation
Transfer Types
Each lot has a transfer type indicating how you acquired it:
Purchase
You bought the tokens with money.
Cost basis: Price paid Tax treatment: Capital asset
Gift
You received tokens as a gift.
Cost basis: Donor's cost basis (carried over) Tax treatment: Special gift rules apply
Grant
You received tokens as employee compensation.
Cost basis: $0 (typically) Tax treatment: Ordinary income at vest
Exercise
You exercised stock options.
Cost basis: Strike price paid Tax treatment: Depends on option type (ISO vs NSO)
Other
Custom transfer type for special situations.
Selling Tokens
Choosing Lots to Sell
When you transfer/sell tokens, you choose which lot:
Navigate to token
Click Transfer
Select lot to transfer from
Enter quantity and recipient
Confirm transaction
The app shows each lot with:
Quantity available
Cost basis
Acquisition date
Days held
Tax Optimization Strategies
FIFO (First In, First Out)
Sell oldest lots first.
Good for:
Long-term capital gains (lower rate)
Simple accounting
Example: Sell Lot 1 first (Jan 1 purchase).
LIFO (Last In, First Out)
Sell newest lots first.
Good for:
Minimizing gains in up market
Harvesting short-term losses
Example: Sell Lot 3 first (Jun 1 purchase).
Highest Cost First
Sell lots with highest cost basis first.
Good for:
Minimizing capital gains
Loss harvesting
Example: Sell Lot 2 first ($1.50 cost basis).
Specific Identification
Choose exact lots based on your situation.
Good for:
Complex tax planning
Optimizing for specific goals
Requires: Careful record keeping (CapSign handles this automatically).
New Lot for Recipient
When you transfer tokens:
Your lot - Quantity reduced
Recipient's new lot - Created with:
Their acquisition date (transfer date)
Their cost basis (negotiated price)
Their payment currency
Transfer type (usually "Purchase")
This means: Recipient's lot is independent of yours.
Reporting for Taxes
Form 8949
When you sell tokens, report on IRS Form 8949:
100 CSA
01/01/2024
12/01/2024
$150
$100
$50
CapSign provides all this data.
Export Lot Data
Export your lot history for your accountant:
Navigate to token
Click Export
Choose format (CSV, PDF)
Send to accountant
Lot Operations
Splitting Lots
When you transfer part of a lot:
Before:
Lot 1: 100 shares @ $1.00
Transfer 30 shares:
Your Lot 1: 70 shares @ $1.00 (remaining)
Recipient's new lot: 30 shares @ $2.00 (if sold for $2.00)
Note: Your cost basis stays $1.00 on remaining shares.
Merging Lots
You cannot merge lots. Each lot must stay separate for tax compliance.
Example: If you buy twice at different prices, you'll always have 2 lots (even same date).
Adjusting Lots
Made a mistake in cost basis?
Navigate to lot
Click Adjust
Enter correct cost basis
Old lot invalidated
New lot created
Note: Creates audit trail - old lot visible as "invalidated."
Advanced Topics
Gifting Tokens
When you gift tokens:
Your side:
Lot quantity reduced
No taxable event (generally)
Recipient side:
New lot created
Cost basis = your cost basis (carried over)
Acquisition date = your date (for long-term holding)
Transfer type = "Gift"
Important: Consult tax advisor for gift tax implications.
Employee Grants
Employee stock grants with vesting:
At grant:
Lot created with 0 cost basis
Vesting schedule attached
At vest:
Ordinary income = FMV at vest
Cost basis = FMV at vest (for future sales)
At sale:
Capital gain/loss = Sale price - Cost basis
Holding period starts at vest
Complex Scenarios
Wash Sales
If you sell at a loss and rebuy within 30 days:
Wash sale rule applies
Cost basis adjusted
CapSign doesn't automatically detect this - consult accountant
Like-Kind Exchanges
Exchanging one security for another:
May defer gains
Lots carry over
Consult tax advisor
FAQs
Q: Why can't I merge lots? A: Tax regulations require separate lots for different acquisition dates/prices.
Q: What if I don't know my cost basis? A: You must track it. Without cost basis, IRS assumes $0, maximizing your tax.
Q: Can I delete a lot? A: No. Lots are permanent for audit trail. You can invalidate and create corrected lot.
Q: What if I received tokens before CapSign? A: Migrate to CapSign by issuing with historical cost basis and acquisition date.
Q: Do I need lots if I never plan to sell? A: Yes. Required for estate planning, gifting, and compliance.
Q: How accurate is the cost basis data? A: As accurate as the data entered at issuance. Verify with your records.
Need Help?
Tax Questions: Consult a tax professional
Technical Support: support@capsign.com
Twitter: @CapSignInc
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