IRS Grants Temporary Tax Relief for Crypto Holders on CeFi Exchanges

• IRS offers 2025 tax relief for CeFi crypto users, allowing record-based asset tracking.
• CeFi users avoid default FIFO rule in 2025 with IRS-approved tax software methods.
• Taxpayers must choose an accounting method by 2026 to prevent default to FIFO.

The Internal Revenue Service (IRS) has introduced a temporary relief measure to assist cryptocurrency holders utilizing centralized finance (CeFi) exchanges. This development addresses concerns regarding tax liabilities stemming from finalized custodial broker regulations under Section 6045. 

The regulations, set to take effect on January 1, 2025, require the use of the first-in, first-out (FIFO) accounting method unless taxpayers opt for an alternative like highest-in, first-out (HIFO) or specific identification (Spec ID).

Relief Prevents Potential Tax Liabilities for CeFi Users

The IRS’s relief measure minimizes tax burdens for CeFi exchange users during 2025. Tax strategy expert Shehan Chandrasekera of Cointracker highlighted the challenge of the new rules. He noted that most CeFi brokers were unprepared to support Spec ID by the January 2025 implementation date. 

Many taxpayers would default to FIFO without the relief, which could unintentionally increase their tax obligations. In bullish market conditions, FIFO accounting could lead to selling assets with the lowest cost basis first. This process often results in higher capital gains taxes. 

The temporary measure allows taxpayers to rely on their records or tax software to determine which specific digital assets are sold during this period, avoiding the automatic application of FIFO.

The relief applies only to transactions between January 1 and December 31, 2025. After this timeframe, taxpayers must formally choose an accounting method with their brokers.

Tax Software and Broker Settings

The IRS emphasized the importance of alignment between tax software and broker settings. Taxpayers must ensure their accounting method in CeFi broker platforms matches the one used in their tax software. Chandrasekera urged users to verify this synchronization to avoid discrepancies and ensure accurate reporting.

From January 1, 2026, taxpayers must formally select their preferred accounting method with their broker. If no choice is made, brokers will default to FIFO, potentially impacting future tax outcomes. However, taxpayers do not need immediate action to qualify for the temporary relief. According to the IRS , the relief is automatically applied.

Chandrasekera also advised users to plan for the transition and understand how the accounting methods influence their tax liabilities. This proactive approach will help crypto holders navigate the regulatory changes smoothly.

Automatic Relief Offers Taxpayers Time to Prepare

The temporary relief provides a crucial buffer for CeFi users, giving them time to adapt to the forthcoming Section 6045 regulations. By allowing personal records or tax software in 2025, the IRS aims to prevent unintended financial burdens during the transition to the new requirements.