The IRS granted limited, temporary relief related to digital asset reporting that took effect on Jan. 1, 2025, Notice 2025-7. For digital assets held by a broker, taxpayers who want to identify assets for sale under a method other than FIFO must contemporaneously provide identifying information with respect to the basis of the assets being sold. The relief suspends this requirement for 2025 but still requires the taxpayer to maintain independent recordkeeping under the procedures outlined in Rev. Proc. 2024-28. RSM discusses that revenue procedure in this article: The end of universal wallet accounting; Rev. Proc. 2024-28 safe harbor relief.
The IRS acknowledged that not all brokers were able to accommodate specific identification requests by Jan. 1, 2025. As a result, relief was granted for the 2025 tax year, with the FIFO rule applying only when specific identification is not made. However, brokers are required to be fully equipped to handle detailed tracking and reporting of digital asset transactions starting Jan. 1, 2026. The requirement for taxpayers to track digital assets on a wallet-by-wallet or account-by-account basis remains in place and is not altered by the temporary relief. Notice 2025-7 does not change this, nor does it affect the safe harbor provisions under Rev. Proc. 2024-28 that assist taxpayers in transitioning to this new method of tracking.
In addition to specific identification, the IRS allows taxpayers to establish standing instructions for alternative methods of identification when the default, First In, First Out (“FIFO”) is not being use, such as Last In, First Out (“LIFO”), or Highest In, First Out (“HIFO”), to all transactions within the year.
As the IRS refines digital asset reporting requirements, taxpayers (in conjunction with their brokers) must establish a system to track holdings on an account-by-account or wallet-by-wallet basis. This preparation is necessary to ensure compliance with future reporting requirements. Proactively preparing for the upcoming changes will help ensure compliance as the regulatory framework evolves.
At RSM US, our team of tax professionals is ready to assist you in navigating the evolving IRS regulations on digital asset transactions. We’ll help you align your reporting practices with the new requirements and provide insight into any necessary system adjustments to ensure compliance.
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