The IRS has introduced temporary relief to address tax challenges for cryptocurrency holders using centralized finance (CeFi) brokers in 2025.
Under new Section 6045 regulations, effective January 1, 2025, CeFi brokers must report crypto transactions and apply specific accounting methods for asset sales. If no method is chosen, brokers will default to First In, First Out (FIFO), potentially increasing tax liabilities during bullish markets.
Most brokers are unprepared to support alternative methods like Highest In, First Out (HIFO) or Specific Identification (Spec ID). To mitigate this, IRS Notice 2025-7 allows taxpayers to use their own records or crypto tax software to specify sold assets, bypassing default FIFO for transactions in 2025.
This relief is automatic for 2025, but starting January 1, 2026, taxpayers must select an accounting method with brokers to avoid FIFO. Taxpayers are advised to maintain accurate records and ensure broker compatibility with their tax software to streamline compliance.
The development aligns with a controversial rule under the Infrastructure Investment and Jobs Act, expanding broker definitions to include decentralized finance (DeFi) platforms. This rule, requiring transaction reporting by DeFi platforms, faces legal challenges from groups arguing it exceeds Treasury’s authority and violates administrative law.
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