As a seasoned tax researcher with a keen interest in digital assets, I find the recent actions of the Internal Revenue Service (IRS) both intriguing and somewhat reassuring. The temporary relief measure for cryptocurrency holders using centralized finance brokers in 2025 is a welcome move, especially considering the potential tax complications that could arise from the implementation of Section 6045 custodial broker regulations.

Having navigated through the labyrinthine world of cryptocurrency taxation for years, I can attest to the fact that the default FIFO method can indeed be a taxing affair, particularly in a bullish market. The relief offered by the IRS allows us, as taxpayers, to breathe a sigh of relief during this transitional period, as we can now specify which assets are being sold using our records or crypto tax software.

However, it’s important to remember that this is not a free pass to neglect record-keeping or use subpar crypto tax software. As the saying goes, “The devil is in the details.” So, let’s ensure we maintain detailed records and use reputable crypto tax software to ensure accurate reporting and alignment with our chosen accounting methods.

Lastly, it seems that even the mighty IRS isn’t immune to a bit of legal pushback. The recent challenge against the IRS’s new rule expanding broker definitions to include decentralized finance platforms is a testament to the dynamic and evolving nature of this space. But hey, who am I to question the wisdom of those who can’t decide whether to pay taxes or not? After all, in Rome, they didn’t ask for roads, they just started building them!

In simpler terms, the Internal Revenue Service (IRS) of the United States has implemented a short-term solution to handle any possible tax issues that may arise for cryptocurrency owners who use centralized finance (CeFi) intermediaries in the year 2025.

According to Shehan Chandrasekera, who leads Tax Strategy at CoinTracker, this relief aims to simplify issues arising from the enactment of the custodial broker regulations under Section 6045, which will come into force on January 1, 2025.

IRS Crypto Relief

According to a recent tweet by Chandrasekera, these new rules mandate that intermediaries dealing with traditional finance (CeFi) must document crypto transactions and use particular accounting techniques when selling assets.

If holders fail to select their preferred accounting method like Highest In, First Out (HIFO) or Specific Identification (Spec ID), brokers will automatically use the First In, First Out (FIFO) method. This default approach can lead to higher tax obligations, especially in a rising market, because it prioritizes selling assets purchased first, which usually have the lowest cost basis.

The issue became more complicated because, starting from January 1, 2025, the majority of Centralized Finance (CeFi) brokers hadn’t prepared their systems to handle Specified Identifier (Spec ID) accounting. To address this hurdle, the Internal Revenue Service (IRS) released Notice 2025-7, offering a temporary solution for cryptocurrency transactions executed on CeFi platforms between January 1 and December 31, 2025.

As a researcher, I’d articulate it like this: During this transitional phase, taxpayers have the freedom to circumvent the standard FIFO method by employing personal records or specialized crypto tax software. This empowers us with more flexibility in determining which assets are being liquidated, providing a more tailored approach to our financial transactions.

No Immediate Action Required

Chandrasekera explained that this relief is self-executing and doesn’t necessitate any immediate actions from taxpayers right now. However, as of January 1, 2026, CeFi users will need to choose an accounting method in consultation with their brokers to prevent the default use of FIFO. By then, it is anticipated that most brokers will offer multiple accounting options, making tax compliance easier and more efficient.

At the same time, it’s recommended that taxpayers keep thorough records or utilize reliable cryptocurrency tax software to guarantee accurate reporting and consistency with their selected accounting techniques. Neglecting this might lead to default FIFO sales, which may not be optimal for most investors. Chandrasekera advises users to prepare in advance and confirm that their broker’s accounting methods correspond with their tax software to avoid discrepancies.

The recent update follows the IRS’s introduction of a controversial broker reporting regulation under the Infrastructure Investment and Jobs Act, which expands the definition of brokers to incorporate Decentralized Finance (DeFi) platforms. This regulation mandates these platforms to report transactions, despite their decentralized operations.

Initially, the hastily executed plan encountered legal disputes spearheaded by A16z Crypto, DeFi Education Fund, among others, claiming that the regulation infringes upon the Administrative Procedure Act and exceeds the jurisdiction of the Treasury Department.

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2025-01-02 00:44