The US Internal Revenue Service announced temporary transition relief for crypto tax reporting on Wednesday.
Brokers will have more time to adapt to new regulations and determine the cost base for cryptos in centralized platforms.
Shehan Chandrasekera is the Head of Tax at CoinTracker. He called this delay “good news” for cryptocurrency holders that interact with CeFi exchanges by 2025.
Further, the temporary relief from transition only applies to sales made inside CeFi Exchanges between 1/1/19 and 12/31/25.
Shehan, writing on X.com, wrote: “After December 31st 2015 you must choose an accounting system for CeFi Assets with the broker.” He also advocated that you should choose the accounting method on CeFi exchange by 1/1/26.
In July 2024 the IRS published final regulations for custodial brokerage (CeFi brokers) to determine which crypto-units are sold when an investor holds multiple units on a central exchange.
The mandate had originally been set to come into effect Jan. 1, 2020. According to the rule, in the event that a taxpayer doesn’t specify their preferred accounting method, then the broker will use the First In, First Out (FIFO) system.
Shehan said “Now, this was a problem in practice.” “As of 1/1/25, almost all CeFi Brokers were not prepared to support the Spec ID.” The specific ID method (Spec ID), allows users to decide which cryptocurrency units they want to dispose of.
This approach had the disadvantage of leaving crypto investors no choice but to sell their assets according to FIFO.
This could have had disastrous consequences for many taxpayers in a bull market climate, the tax expert explained.
The new crypto-tax reporting delay allows brokers a year of grace to implement other accounting methods.
While the IRS has been sued by the IRS, the Blockchain Association in collaboration with Texas Blockchain Council has filed a lawsuit over its latest cryptocurrency regulation.
The IRS new rules requiring brokers to report crypto-transactions were the target of a legal fight announced on December 28.
