What Is Phantom Income in Crypto?
Phantom income occurs when you owe taxes on income or gains you didn't realize you had. In cross-chain transfers, this often happens when assets move between wallets or chains without proper tracking. The IRS hasn't provided explicit rules for all bridge scenarios, so gaps exist. If your wallet isn't detected across chains, you might not see or report income correctly.
How Moonscape Detects Missing Wallets and Cross-Chain Moves
Moonscape uses sophisticated algorithms to trace asset movements across multiple blockchains. When you transfer tokens via bridges, our system scans for related transactions, wallet addresses, and token flows. If a transfer occurs but isn't linked to your primary wallet, Moonscape flags it as a potential missed transaction. Our alerts notify you of cross-chain moves that might generate taxable events, even if the wallet isn't directly connected.
How to Fix and Report Missed Cross-Chain Transactions
If Moonscape alerts you about a missing wallet transfer, review the transaction details carefully. Confirm whether the transfer was a taxable event—like swapping assets or withdrawing to a new chain. To fix past omissions, add the transaction manually if needed, or adjust your cost basis accordingly. Keeping detailed records of bridge transactions, including dates, amounts, and chain info, helps ensure accurate tax reporting. If in doubt, consult a CPA familiar with crypto cross-chain activity.
Concrete Example of Phantom Income from Cross-Chain Bridge
Suppose you bridge 1 ETH from Ethereum to Binance Smart Chain (BSC). During the transfer, you pay a bridge fee of 0.01 ETH. Your Moonscape alert flags this transfer. The IRS considers the fee payment as a disposal of 0.01 ETH, which could generate a taxable gain if ETH appreciated. If you didn't report this, you might owe taxes on that small gain—an example of phantom income resulting from a missing wallet link.