IRS Issues New Notice Easing Burden on CeFi Cryptocurrency Investors

The United States Internal Revenue Service (IRS) has introduced a temporary relief measure to address potential tax challenges for cryptocurrency holders using centralized finance brokers (CeFi) in 2025.

As Shehan Chandrasekera, head of tax strategy at CoinTracker, explained, the relief mitigates complications arising from the implementation of Section 6045 custodial broker regulations, which go into effect on January 1, 2025.

IRS Crypto Relief

These regulations require centralized finance brokers (CeFi) to report cryptocurrency transactions and apply specific accounting methods for asset sales, according to Chandrasekera. tweet.

If holders do not choose a preferred accounting method, such as highest in first out (HIFO) or specific ID (Spec ID), brokers will default to first in first out (FIFO) . This default method can increase tax liabilities, particularly in a bull market, by prioritizing the sale of the earliest acquired assets, which often have the lowest cost basis.

The problem was further compounded by the fact that as of January 1, 2025, most CeFi brokers were not prepared to support Spec ID accounting. Recognizing this challenge, the IRS issued Notice 2025-7 which was intended to provide temporary relief for cryptocurrency sales made on CeFi exchanges between January 1 and December 31, 2025.

The relief allows taxpayers to avoid the default FIFO method by using their own crypto tax records or software to specify which assets are sold, offering greater flexibility during this transition period.

No immediate action required

Chandrasekera clarified that this relief is automatic and does not require any immediate action from taxpayers. However, starting January 1, 2026, CeFi users must select an accounting method with their brokers to avoid FIFO non-compliance. At this time, most brokers are expected to support a variety of accounting options, simplifying tax compliance.

Meanwhile, taxpayers are also urged to keep detailed records or use reputable crypto tax software to ensure accurate reporting and alignment with chosen accounting methods. Otherwise, default FIFO sales could occur, which may not be ideal for many investors. Chandrasekera urged users to plan ahead and check that their broker’s accounting methods match their tax software to avoid discrepancies.

The latest development comes days after the IRS introduced a reporting rule for brokers under the Infrastructure Jobs and Investment Act, controversially expanding definitions of brokers to include decentralized finance (DeFi) platforms. ). This rule requires platforms to report transactions despite their decentralized nature.

The rushed implementation faced immediate legal challenges led by A16z Crypto, DeFi Education Fund and others, who argue that the rule violates the Administrative Procedure Act and overrides the Treasury’s authority.