- The IRS has issued a notice providing temporary relief for taxpayers handling digital assets under new identification rules
- The relief allows alternative methods for specifying digital asset units during sales, transfers, or disposals in 2025
- Taxpayers and brokers face challenges implementing the updated rules due to technology gaps and complex regulations
The Internal Revenue Service (IRS) has announced temporary relief for taxpayers managing digital assets amid new cost-basis identification requirements. Starting in 2025, taxpayers can use alternative methods to identify sold or transferred digital asset units, addressing issues arising from technology limitations among brokers. The relief is intended to ease the transition to updated regulations, but challenges remain in achieving full compliance.
IRS Eases Digital Asset Rules
The IRS recently issued Notice 2025-7, allowing temporary flexibility for taxpayers to comply with digital asset identification rules. This adjustment addresses challenges posed by the agency’s final regulations, published in July 2024, which mandate strict identification protocols for digital assets held with brokers. The relief period, effective from January 1 to December 31, 2025, provides leeway for taxpayers who cannot fully meet the prescribed standards.
The 2024 regulations aimed to enhance transparency by requiring taxpayers to identify specific digital asset units during sales or transfers, referencing criteria like purchase date and cost. Without adequate identification, the default First In, First Out (FIFO) rule applies. While the regulations are designed to standardize reporting, many brokers reportedly lack the technological infrastructure to support these requirements fully.
Relief and Safe Harbor Provisions
The IRS’s temporary relief offers two alternative methods for compliance: taxpayers can either specify digital asset units in their records at the time of the transaction or establish standing orders pre-recorded in their books. These measures are designed to mitigate difficulties as taxpayers and brokers adapt to the new framework.
Additionally, the relief aligns with Rev. Proc. 2024-28, which provides a safe harbor for transitioning to account-specific allocation methods. Taxpayers utilizing this safe harbor can rely on the temporary relief once they meet all procedural requirements.
Despite these provisions, implementing the regulations remains a challenge. The Treasury Department acknowledged, “Not all brokers have systems in place to process taxpayer-specific identification requests,” potentially leading to compliance delays. Meanwhile, experts emphasize the importance of educating taxpayers about the new standards to avoid penalties.
As the relief period unfolds, it will test the readiness of taxpayers and brokers alike to navigate the evolving regulatory landscape.
