The Internal Revenue Service (IRS) has granted temporary relief on crypto cost-basis reporting rules, aiming to alleviate tax liabilities for digital asset investors. The agency acknowledges the complexities in crypto taxation and recognizes the need for regulatory adaptability amid evolving markets.
The postponement defers a rule that would have mandated centralized exchanges to use the First In, First Out (FIFO) accounting method, which often leads to higher taxable gains during market upswings. This extension will remain in place until December 31, 2025, allowing brokers more time to accommodate various accounting methods.
Investors had expressed concerns about potential inflated tax bills due to FIFO’s effects on asset sales and prices. The IRS has provided alternative options, including Highest In, First Out (HIFO) and Specific Identification (Spec ID), which empower investors to select assets to sell and offer flexibility in mitigating tax exposure.
The announcement coincides with growing legal scrutiny over the agency’s approach to digital asset taxation. A lawsuit filed by industry groups challenges the expanded reporting requirements, arguing they exceed constitutional bounds. Critics argue the regulations impose undue burdens on market participants.
However, the postponement is seen as a necessary step towards balancing regulatory oversight with the crypto industry’s operational realities. Market participants view the delay as constructive development, allowing more time for industry adaptation and compliance.
Source: https://cryptoslate.com/irs-grants-temporary-relief-on-crypto-tax-reporting-rules-amid-legal-challenges