The Internal Revenue Service (IRS) has announced a significant delay to its planned crypto tax reporting rules, bringing relief to crypto investors and the broader blockchain community. Originally set to take effect in 2024, these changes would have mandated a default accounting method that could have resulted in higher tax liabilities for many investors. Now, the implementation has been postponed until December 31, 2025.

What Was Changing?

The initial plan from the IRS introduced the First In, First Out (FIFO) accounting method as the default for crypto transactions on centralized exchanges. Under FIFO, the oldest assets are sold first, often leading to larger taxable capital gains, particularly in a rising market. This rule would have applied automatically unless investors chose an alternative accounting method.

Critics, including Shehan Chandrasekera, head of tax at CoinTracker, raised concerns that the rushed implementation of FIFO could have been a financial burden for investors. Many would inadvertently sell their oldest (and lowest-cost-basis) assets, triggering substantial tax liabilities.

The IRS’s decision to delay the rule gives crypto brokers more time to upgrade their systems to support alternative accounting methods like Highest In, First Out (HIFO) and Specific Identification, which can be more tax-efficient for many investors.

Why This Matters

This extension is great news for crypto investors, as it provides them with an extended window to manage their accounting records and potentially minimize their tax burden. With the reprieve, investors can continue using methods that align with their financial strategies while waiting for clearer guidance and better tools from exchanges.

Moreover, this delay reflects the growing dialogue between regulatory bodies and the crypto community. It highlights the importance of ensuring that new rules are both practical and fair.

A Broader Legal Battle

This isn’t the only recent IRS development impacting crypto. The Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS, challenging the constitutionality of upcoming broker reporting requirements. Set to begin in 2027, these rules would mandate brokers to report gross proceeds from crypto sales and disclose taxpayer information.

The lawsuit underscores the ongoing tension between the crypto industry and regulators as both sides work to define fair standards for this rapidly evolving sector.

Looking Ahead

The postponement of the FIFO rule offers a welcome respite for investors navigating an already complex tax landscape. This delay also gives the industry more time to develop robust solutions that comply with new regulations while safeguarding user interests.

For now, crypto investors can take comfort in having additional time to prepare for these changes. If you’ve been managing your records manually or considering alternative accounting methods, this is your chance to strategize effectively.

Stay tuned for further updates as the IRS continues to refine its approach to crypto taxation—and as the crypto community continues to advocate for fairness and clarity.