PolyTraderSharp/docs/steuer/Accounting-US-Tax-Questionnaire.md

# US Tax Treatment Questionnaire — Polymarket Trading Operations (Florida LLC)

*Prepared for our US CPA / tax advisor. Purpose: determine the correct federal tax treatment and the
exact report formats so our in-house accounting tool computes and exports precisely what you need.*

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## Context

We operate automated trading strategies on **Polymarket** — a blockchain-based prediction-market /
event-contract platform — through a **Florida LLC**. Positions settle in **USDC** (a USD-pegged
stablecoin) on the Polygon network via Polymarket's smart contracts and **Gnosis-Safe proxy wallets**.

We are building an in-house accounting tool that:

- Independently pulls **every transaction of every trading account directly from Polymarket** (not from
  our own trading database) and stores an **immutable, audit-traceable ledger** — each entry backed by a
  blockchain transaction hash / platform activity ID and a stored raw-data snapshot.
- Reconciles each account against its **on-chain USDC balance** as a completeness check.
- Produces **per-account and consolidated period statements** (monthly and custom date ranges) and will
  produce **US federal tax computations** (Form 8949 / Schedule D-style) under assumptions **you specify**.

**Transaction/event types we capture per account:** buys, sells, redemptions (winning-position payouts at
market resolution), losing positions expiring worthless, trading fees, maker rewards / rebates, on-chain
USDC deposits and withdrawals.

Where a treatment is uncertain, we will implement **your chosen approach as a documented, configurable
assumption** that is disclosed on every export. Please answer as many items as are relevant.

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## A. Entity, filing & registration
1. Federal classification of the LLC: **single-member (disregarded entity)** or **multi-member
   (partnership, Form 1065 + Schedules K-1)**? Any election to be taxed as **S-corp / C-corp**
   (Form 2553 / 8832)?
2. Which federal forms/schedules will this activity flow into (e.g., Schedule C, Schedule D + Form 8949,
   Form 1065/K-1, Form 4797)?
3. Florida has no personal state income tax — is there anything at the entity level we must reflect, or
   is this **federal only**? Any Florida annual-report items affecting our accounting?
4. EIN and tax year (we assume calendar year)?

## B. Character & classification of Polymarket P&L
5. How should gains/losses from Polymarket **event contracts** be characterized: **capital gains/losses**
   (Form 8949 / Schedule D), **ordinary income**, **gambling winnings/losses**, **§1256 contracts**
   (60/40, mark-to-market), or **other**?
6. Do you regard these instruments as **securities, commodities, swaps, wagering transactions, or
   property**? Does the characterization differ by market type (e.g., sports vs. politics vs. crypto-price)?
7. If capital: our holding periods are effectively always **under one year** — do you want everything
   reported as **short-term**, or should we still compute per-lot holding periods (acquisition → disposition)?
8. If gambling treatment applies: how should we present winnings vs. losses (losses limited to winnings;
   per-wager vs. session netting)?

## C. Trader Tax Status & §475(f) mark-to-market
9. Given the volume and automation, could the LLC qualify for **Trader Tax Status (TTS)**? Do you
   recommend a **§475(f) mark-to-market election** (ordinary gain/loss, no wash-sale, no capital-loss
   limitation, year-end MTM)?
10. If §475(f) MTM applies, what **price source and timing** would you accept to mark **open positions**
    at period/year end (last trade, mid-price, resolution probability)?
11. **Self-employment tax:** does this activity create SE-tax exposure, or is it exempt (trading gains
    generally not SE income)?

## D. Cost basis & lot accounting
12. Cost-basis method: **FIFO** (our default), **specific identification**, or other? Any documentation
    requirements for specific-ID?
13. Should trading **fees** be **capitalized into basis / netted against proceeds**, or deducted
    **separately** as expenses?
14. **Redemption** (winning shares pay out at resolution): treat as a disposition at **$1.00/share**
    proceeds against lot basis? **Losing shares** expiring worthless: treat as a disposition at **$0**
    (realized loss) on the resolution date?
15. Partial fills within one transaction: acceptable to **aggregate same-tx fills into one lot**?

## E. USDC / stablecoin treatment
16. May we treat **USDC as a USD cash-equivalent (1:1)**, so acquiring/spending USDC is **not** itself a
    separate taxable crypto disposition? Or must USDC be tracked as **property** with its own basis?
17. If USDC must be tracked as property, what **USD valuation source/timing** per transaction do you require?

## F. Wash-sale & related rules
18. Do **wash-sale rules (§1091)** apply to these instruments (they are not traditional "stock or
    securities," and crypto is currently generally exempt)? If potentially applicable, should the tool
    **flag/adjust** wash sales?
19. Are **straddle (§1092)** or **constructive-sale** rules relevant to any hedged/paired positions?

## G. Income items & deductions
20. **Maker rewards / liquidity rebates** received in USDC: **ordinary income at fair value on receipt**?
    Where reported? Does receipt create a **new USDC lot** at that value?
21. Deductible business **expenses** (platform/trading fees, Polygon gas/POL, infrastructure, software,
    this tooling): where and how (Schedule C vs. netted)?
22. Will Polymarket issue any **1099** (likely not, as a non-US operator)? If so, how should we reconcile to it?

## H. Foreign account / information reporting
23. Is a Polymarket account (funds in a Polygon **Gnosis-Safe proxy** on a non-US platform) a **"foreign
    financial account"** triggering **FBAR (FinCEN Form 114)** above the $10,000 aggregate threshold?
24. Does **FATCA / Form 8938** reporting apply (specified foreign financial assets)?
25. Is **Form 8886** (reportable transactions) or any other information return relevant?
26. Any concerns arising from Polymarket's **US regulatory status** that affect characterization or reporting?

## I. Currency & valuation
27. Reporting/functional currency: **USD** confirmed? We also generate **EUR** figures — needed for the US
    filing, or purely internal/EU personal use?
28. FX source/timing: for non-USD figures, is the **ECB daily reference rate at transaction date**
    acceptable? For **USDC→USD**, is **1:1** acceptable or do you require actual spot?

## J. Report format & delivery (so we tailor exports to you)
29. Preferred deliverables: **Form 8949 CSV in the exact IRS column layout**, a **general-ledger** export,
    a **Schedule D summary**, and/or a **PDF statement**? Which formats do you want?
30. Level: **per-account** statements, a **consolidated LLC** view, or both?
31. Cadence: **monthly** bookkeeping packages plus an **annual** tax package? Do you need **quarterly
    estimated-tax** figures?
32. Exact **columns/fields** on the disposition report (e.g., Description of property, Date acquired, Date
    sold, Proceeds, Cost basis, Wash-sale adjustment, Gain/loss, Short/Long)?
33. **Audit-defensibility** documentation you want attached (methodology page, source transaction hashes,
    raw-data retention, reconciliation to on-chain balances)?
34. Rounding/precision conventions (whole USD vs. cents)?

## K. Anything else
35. Any other **elections, forms, thresholds, or record-keeping standards** we should build into the tool
    now to make your work smooth and the LLC's filings defensible?

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*We will encode your answers as the tool's default assumptions, each disclosed on every statement and
adjustable in settings. Thank you.*