Tax Question (USA)

I have a question for a friend who got involved with crypto a few years ago but completely ignored my advice on keeping track and logging taxable events.

As it stands now, he holds only Bitcoin but a pretty nice stash (well into double digits). He is talking about retiring if the price does what many of us think it will, and I finally confronted him on taxes. As it turns out, he bought most of his Bitcoin on Coinbase and Gemini a few years ago, along with some Litecoin and Ether. He traded the Litecoin and Ether in 2018 for Bitcoin using ShapeShift or Changely or some other service like that. He didn't keep track of it and did not report the trades on his taxes. He says he didn't have to because the price of the LTC and ETH were lower when he traded them than what he bought them for.

So the problem is that now he has several Bitcoin in his Ledger wallet that he cannot associate with a buy on Coinbase. Most of his Bitcoin he can associate with lots for tax reporting, but there are a few left over due to the trades that he did. He is finally starting to plan his exit, and he is freaking out about taxes now that I finally got it through his thick head how this all works.

So what should he do to fix this? When he sells some BTC, can he just use a cost basis of $0 from the few BTC he has leftover and use an arbitrary date in 2018 close to when he sold the LTC/ETH and pay taxes on the full amount as a long-term gain? Can he just comment that it was from undocumented trades? Is this likely to trigger an audit? He wants to be honest now to "not jeopardize his Lambo" or end up in jail. Can he plead ignorance here and avoid penalties?

I helped him download all of his transactions from Coinbase and Gemini and put them in a spreadsheet. He hasn't sold any Bitcoin ever, which is awesome because he bought some when it was under $1,000! When I sum the column for the BTC buys, it is short a few BTC compared to what he has stored in his Ledger, and I just don't know what to tell him.

I suggested that he use the unaccounted for balance first when he finally starts selling to get that out of the way as soon as possible. That way when the price of BTC goes even higher, and he sells larger amounts, those higher values will be tracked better to actual buys on exchanges and hold up better in the event of an audit. But how should he report it? You are supposed to have dates for when it was acquired along with the cost basis, which he doesn't have.

Any advice is greatly appreciated!