Virtual Currency

I would start with the IRS resources:

https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions

https://www.irs.gov/newsroom/virtual-currency-irs-issues-additional-guidance-on-tax-treatment-and-reminds-taxpayers-of-reporting-obligations

And since you didn't note how it was acquired:

https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

FBAR and 8938 reporting may be required.

Did you ask him why he lied?

This reminds me of the branch chief at IRS National Office, when I worked there, who never  filled out the "Occupation" line on his 1040 because he said there was no law that required it.  So, where is the law that requires an answer to this question?  Maybe it was an executive order, or maybe the wishy-washy Regulations that authorize IRS to design forms that help it administer the tax laws.  I think there's a Supreme Court case involving whether tax shelters have to turn themselves in by filing some form, but that issue is above my pay grade.

However, I don't find where "acquisition" of virtual currency has anything to do with the Schedule 1 question.  The instructions for that question cover only the situation where the VC is acquired for free, or in a transaction:

"The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork"

We could all jam the IRS phone lines by calling to ask the difference between an airdrop or a hard fork.  Or, we could just ask "How high?" when IRS says "Jump!"