The Internal Revenue Service (IRS) has announced a temporary reprieve for crypto investors regarding new reporting rules.
The Internal Revenue Service (IRS) has announced a temporary reprieve for crypto investors regarding new reporting rules that would have mandated a default accounting method for crypto transactions on centralized exchanges.
This change, initially set to take effect in 2024, would have forced investors to use the FIFO (First In, First Out) method to calculate capital gains unless they opted for a different accounting method.
Under the FIFO method, the oldest assets are considered sold first, which can significantly increase capital gains for taxpayers. Critics, including Shehan Chandrasekera, head of tax at Cointracker, expressed concerns that the immediate implementation of these rules could have negatively impacted investors during market upswings.
Chandrasekera noted that investors might unintentionally sell their earliest purchased assets, which typically have the lowest cost basis, resulting in higher capital gains taxes.
The IRS has now postponed the automatic application of the FIFO rule until Dec. 31, 2025, allowing investors to maintain their own accounting records until that date. This extension gives brokers adequate time to adapt their systems to support various accounting methods, such as HIFO (Highest In, First Out) and Specific Identification.
In a related development, the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS on Dec. 28, 2023, challenging the constitutionality of new rules requiring brokers to report digital asset transactions.
These rules, set to be enforced in 2027, will require brokers to disclose taxpayer information and report gross proceeds from crypto sales.
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