The Internal Revenue Service (IRS) has granted temporary relief on crypto cost-basis reporting rules, offering potential relief for digital asset investors by delaying the implementation of certain tax reporting requirements. This decision reflects the agency’s recognition of the complexities involved in crypto taxation and its need to remain adaptable to the evolving cryptocurrency market.
Tax Relief for Investors
The relief postpones a rule that would have required centralized crypto exchanges to use the First In, First Out (FIFO) accounting method when calculating capital gains. FIFO generally assumes that the oldest assets are sold first. During periods of market growth, this method can lead to higher taxable gains because it could force the sale of assets purchased at lower prices, thus increasing the taxable amount.
The IRS’s decision extends this delay until December 31, 2025, providing brokers with additional time to accommodate other accounting methods. Investors had raised concerns that FIFO would result in inflated tax bills, particularly as it would require selling older, lower-cost assets, potentially triggering higher taxable gains. The immediate application of FIFO could have significant tax consequences, disproportionately affecting crypto taxpayers.
During this relief period, taxpayers will have the flexibility to choose accounting methods such as Highest In, First Out (HIFO) or Specific Identification (Spec ID). These alternatives give investors the option to select which assets to sell, potentially lowering their tax liability and offering more control over their financial outcomes.
Legal Challenges and Industry Pushback
The IRS’s move comes at a time when there is growing legal and industry scrutiny over its evolving approach to cryptocurrency taxation. On December 28, the Blockchain Association and the Texas Blockchain Council filed a lawsuit challenging the IRS’s expanded reporting requirements. This lawsuit argues that the rules, which would require brokers to report all digital asset transactions—including those conducted on decentralized exchanges (DEXs)—go beyond the IRS’s constitutional authority.
Critics argue that the expanded rules impose unnecessary burdens on market participants. Under these new regulations, which are set to take effect in 2027, brokers will be required to report taxpayer information and disclose gross proceeds from crypto transactions.
The temporary relief from the IRS acknowledges the volatile nature of the crypto markets and the diverse strategies used by investors. Many industry observers see the delay as an important step in balancing regulatory oversight with the practical realities of the cryptocurrency market.
Market participants have generally welcomed the delay, as it allows more time for the industry to adjust and comply with the forthcoming rules. This decision gives brokers and investors a chance to better prepare for the eventual implementation of the reporting requirements while navigating the complexities of crypto taxation.
