The Internal Revenue Service (IRS) has rolled out a relief program for crypto classification on centralized exchanges before the commencement of its new crypto tax regulations.
The relief program is billed to commence on January 1, 2025, and run through December 31, 2025. It will allow crypto users to use their crypto tax records or software tools to determine how many units they are going to sell. The program will also allow them to specify the units they are locking in into First-In, First-Out (FIFO).
IRS relief program will prevent forced FIFO sales in 2025
The IRS previously announced a new custodial brokerage regulation, which was billed to begin in 2025. The regulation, enshrined under Section 6045, mandated crypto users in centralized exchanges to specify their preferred accounting methods. The methods included specific identification (Spec ID), Highest-In, First-Out (HIFO), with the regulator mandating sales under FIFO if they refuse to make a decision.
However, the deadline meant that most centralized exchanges would not be able to integrate Spec ID by January 1. It meant that users would have no choice but to sell their holdings under FIFO. It means that users will have to sell assets that were purchased earlier first, which would lead to higher capital gains and increased taxes.
In its plan to address the issue, the IRS has provided CeFi users with a one-year break. This means that users would be able to document the units sold using their tax record books or software. It also means that assets won’t be sold under FIFO anymore this year. In addition, users are not required to file any document to be eligible for the extension as it will happen automatically.
With the postponement, the IRS expects that centralized exchanges would have put the different accounting measures in place before 2016. It means that the new deadline to choose a preferred accounting method will be December 31, 2025, with the regulation expected to come into place the following month.
Forbes crypto analyst Shehan Chandrasekera has urged users to pick their accounting methods before 2026, urging them to put pressure on their exchanges. “So, make sure to pick your accounting method at your CeFi exchange on 1/1/26. If you don’t pick one, you will most likely default to FIFO. Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync,” the analyst said.