Internal Revenue Service issued temporary relief to crypto-cost basis reporting rules. This could help digital asset investors avoid increased tax obligations.
The decision reflects the agency’s recognition of the complexities in crypto taxation and the need for regulatory adaptability in response to evolving markets.
Tax Relief
The rule change delays implementation, which would have required centralized crypto-exchanges to automatically use First In, First Out for calculations of capital gains. FIFO assumes that the oldest assets will be sold first. This can lead to higher taxable gain during a market boom.
The extension is in effect until December 31, 2025. This will give brokers more time to adapt their accounting systems.
Investors were concerned about the possibility of inflated taxes, since FIFO would force investors to sell assets at lower prices and increase gains. Shehan Chandrasekera, Cointracker’s head of tax, cautioned that the immediate application of FIFO could disproportionately affect crypto taxpayers, potentially triggering substantial tax burdens.
Taxpayers can choose to use accounting methods like Highest in, First out (HIFO) or Specific Identification. They allow for greater flexibility in the selection of assets that investors can sell.
Legal issues
The IRS’s announcement coincides with heightened legal and industry scrutiny over the agency’s evolving approach to digital asset taxation. On Dec. 28, the Blockchain Association and the Texas Blockchain Council filed a lawsuit contesting the IRS’s expanded reporting requirements.
This lawsuit is challenging the requirement that brokers report digital assets transactions including those on DEXs. The suit argues the regulation goes beyond constitutional boundaries.
Critics of the IRS’s broadened rules claim they exceed the agency’s authority and impose undue burdens on market participants. Brokers will have to disclose their gross profits from cryptocurrency transactions and report tax information under the new framework that is scheduled to come into effect in 2027.
The temporary relief highlights the IRS’s acknowledgment of the crypto markets’ volatile nature and investors’ varied strategies. Observers see the decision as a necessary step toward balancing regulatory oversight with the crypto industry’s operational realities.
Participants in the market generally see this as a positive development that allows more time for adaptation by industry and compliance.
Featured in: US Crypto, Regulators, Taxes The Author 
Assad Jafri
AJ is a dedicated journalist who has spent over a century honing his craft. Specialized in financial journalism and focusing on crypto-reporting, he is now focused.
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