The U.S. Internal Revenue Service (IRS) has issued temporary relief against rules that force cryptocurrency holders on centralized exchanges to default on less-than-ideal accounting practices.
An initial IRS ruling stated that if investors holding cryptocurrency assets with a CeFi broker do not select a preferred accounting method such as Highest In, First Out (HIFO) or Spec ID, the broker will default to reporting sales using the FIFO method. Yes.
FIFO, also known as “First In First Out,” is the primary method of calculating capital gains taxes in the United States. This is calculated by assuming that the oldest cryptocurrencies are sold first, thereby increasing the taxpayer’s capital gains.
“You don’t have to be stuck in FIFO like you used to be,” Cointracker tax director Shehan Chandrasekera said in a December 31 X post.
FIFO automatic rule has been postponed.
Chandrasekera warned that immediately enforcing this rule could be “disastrous” for many cryptocurrency taxpayers during a bull market.
source: Shehan Chandrasekera
He said this is because investors can “unintentionally” sell the assets they buy first (those with the lowest cost basis) first, “unknowingly maximizing their capital gains.”
Crypto critic Mark Thomas wrote in an If it is less than a year.”
relevant: Uniswap CLO says IRS DeFi broker rules ‘absolutely need to be challenged’
“FIFO in this case would mean long-term capital gains, not short-term,” Thomas said.
The temporary relief applies to sales on centralized cryptocurrency exchanges until December 31, 2025 to give brokers time to support all accounting methods.
Cryptocurrency taxpayers can maintain their records until that date.
Blockchain Association Takes Legal Action Against IRS
The update comes after the Blockchain Association and the Texas Blockchain Council filed a complaint with the IRS on Dec. 28 regarding rules requiring brokers to report digital asset transactions and expanding existing requirements to include platforms such as decentralized exchanges (DEXs). This comes just days after a lawsuit was filed arguing that this does not apply. Unconstitutional.
When the regulations take effect in 2027, brokers will be required to disclose information about taxpayers involved in digital asset transactions. Brokers must also report total revenue from selling cryptocurrencies and other digital assets.
magazine: Pixels founder, who fell to $200 one day, made $2.4 million the next day: Luke Barwikowski, X Hall of Flame