The IRS is offering temporary relief for changes to the crypto cost-based method

The United States Internal Revenue Service (IRS) has issued a temporary relief to a rule that could disable the less-than-perfect accounting system for crypto holdings on centralized exchanges.

The first IRS ruling states that if investors holding crypto assets with a CeFi broker do not choose their preferred accounting method, such as HIFO (Highest In, First Out) or Spec ID, the broker will engage in reporting sales using the FIFO method.

FIFO, otherwise known as “First In, First Out,” is the default method for calculating capital gains taxes in the US. The oldest cryptocurrency bought by maximizing capital gains for taxpayers is believed to have been sold.

“You don't have to be locked into FIFO like before,” said Sheehan Chandrasekera, head of taxation at Cointracker, in a December 31 X post.

The FIFO automatic rule has been postponed

Chandrasekera warned that immediate enactment of this law could be a “disaster” for many crypto taxpayers during the bull market.

That's because investors can “unwittingly maximize their capital gains” by selling their pre-purchased properties – the ones with lower value – first, he said.

“The only time FIFO can be good is if your sell-by date is more than a year from the first crypto you bought, but less than a year from the last crypto you bought,” crypto analyst Mark Thomas said in a January 1 X post. He said.

Related: IRS DeFi broker rule ‘must be vetoed,' says Uniswap CLO

“FIFO, in this case, means long-term capital gains instead of short-term,” Thomas said.

The temporary relief will apply to sales on centralized crypto exchanges until December 31, 2025, to give brokers time to support all accounting methods.

Crypto taxpayers can keep their own records until that date.

The Blockchain Association takes legal action against the IRS

The update comes after the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS on December 28, arguing that rules requiring brokers to report digital asset transactions and expanding existing requirements to include platforms such as decentralized exchanges (DEXs). Unconstitutional.

Once the rules go into effect in 2027, brokers will have to report information to taxpayers about their involvement in digital asset transactions. The brokers will have to report the gross income they get from the sales of crypto and other digital assets.

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