IRS Provides Temporary Relief for CeFi Exchange Users Ahead of New Tax Regulations

The IRS Announces Temporary Relief for CeFi Exchange Users in 2025

In a significant move for cryptocurrency holders, the United States Internal Revenue Service (IRS) has announced a temporary relief measure aimed at benefiting users of centralized finance (CeFi) exchanges. This initiative addresses the challenges posed by the new broker regulations outlined in Section 6045, which are set to take effect on January 1, 2025.

Understanding the Broker Regulations Under Section 6045

The final version of the broker regulations will require cryptocurrency users to apply the first-in, first-out (FIFO) accounting method for digital asset transactions, unless they opt for a different method such as highest-in, first-out (HIFO) or Specific Identification (Spec ID).

Challenges Faced by CeFi Exchange Users

According to Shehan Chandrasekera, Head of Tax Strategy at Cointracker, a critical problem emerges: as of January 1, 2025, nearly all CeFi brokers are unprepared to support the Spec ID method. This lack of preparedness could compel cryptocurrency holders to default to the FIFO accounting method, which may increase their tax liabilities when they sell their assets.

Chandrasekera has described the situation as potentially disastrous for many taxpayers, especially during a bull market. Many could unintentionally sell their oldest purchased assets—typically those with the lowest cost basis—leading to inflated capital gains that could have been avoided.

Details of the Temporary Relief

The IRS's temporary relief mechanism grants taxpayers the ability to utilize their existing records or tax software to identify specific units being sold. This relief will only affect transactions made through CeFi exchanges from January 1, 2025, to December 31, 2025.

Starting January 1, 2026, taxpayers must formally select an accounting method through their brokers. This underscores the need for Cointracker users to synchronize their tax software settings with their broker's settings to ensure accurate reporting.

Conclusion: What This Means for Cryptocurrency Taxpayers

The IRS's temporary relief provides much-needed support for CeFi exchange users as they prepare for the upcoming regulations. By allowing taxpayers to leverage their existing tax records, the IRS aims to mitigate the impact of complicated accounting methods during a time when many are navigating a volatile crypto market.

As the deadline approaches, cryptocurrency holders should stay informed and ensure they are equipped to manage their tax obligations effectively while minimizing potential liabilities.