The IRS has issued a notice providing temporary relief to crypto holders interacting with centralized finance (CeFi) exchanges. The new relief by the IRS aims to solve issues associated with the new Section 6045 custodial broker regulations, which will come into effect in 2025.
As shared by Shehan Chandrasekera, the Head of Tax Strategy at Cointracker, “this is good news for crypto holders interacting with CeFi exchanges in 2025!”
Why IRS Has Issued the Relief
The IRS previously required all CeFi crypto brokers to fully comply with the Section 6045 custodial broker regulations starting Jan. 1, 2025. Under the new rules, the regulatory body mandated CeFi crypto brokers to sell holders’ assets using the FIFO accounting technique. This meant that the first purchased asset should have been the first one to be sold, unless the holder chooses to use either the Highest-In, First-Out (HIFO) or the Specific Identification (Spec ID) methods.
Many CeFi brokers, however, failed to prepare themselves to meet the Spec ID requirements before the stipulated deadline. Because of this many crypto holders would have been forced to use the default accounting method (FIFO). Under bullish market conditions, the FIFO accounting method would result in taxpayers being forced to sell their first bought assets hence lowest cost basis which would maximize holders’ capital gains.
Upon realizing this issue,…
