The Internal Revenue Service (IRS) has taken a surprising step, delaying the implementation of stringent cryptocurrency tax reporting requirements for brokers until January 1, 2026. For many in the digital asset space, this reprieve offers critical breathing room to adapt to what will be a transformational shift in how crypto is accounted for in the United States. However, this temporary relief also poses challenges as brokers scramble to upgrade infrastructure and investors face a narrowing window to optimise their tax strategies.
The decision comes amid widespread concerns from tax professionals and centralised finance (CeFi) platforms, who have argued that the original timeline was unworkable. With the clock ticking, this postponement provides an opportunity to explore the far-reaching implications for brokers, investors, and the evolving landscape of cryptocurrency regulation.
What Changed and Why It Matters
At the heart of the delay is the IRS’s requirement for brokers to determine and report the cost basis for crypto assets. Without proper reporting systems in place, brokers would have struggled to comply with rules requiring them to default to a First-In, First-Out (FIFO) accounting method if investors failed to specify otherwise. Critics highlighted that many platforms lack the ability to support alternative accounting strategies, such as Highest-In, First-Out (HIFO) or Specific Identification, which offer more flexibility for tax optimisation.
“Getting it wrong could have meant enormous administrative chaos and unfair tax burdens,” said a senior tax adviser, speaking on the condition of anonymity. “The IRS has wisely given all stakeholders more time to get this right.”
The temporary relief under Section 1.1012-1(j)(3)(ii) of the tax code allows CeFi platforms to defer the implementation of mandatory FIFO accounting until 2026. This is not a blanket delay for all crypto tax reporting, however. Brokers are still required to report digital asset transactions for 2025 sales, with the first round of reporting due in 2026.
The Bigger Picture: Growing Pains in Crypto Regulation
This delay underscores the growing pains of integrating cryptocurrency into traditional regulatory frameworks. The IRS has been grappling with how to treat digital assets for over a decade, but the explosive growth of the sector has accelerated the need for clear and enforceable rules.
The Treasury Department has already finalised tax reporting standards for decentralised finance (DeFi) platforms and non-hosted wallets, aligning them with traditional asset reporting. Meanwhile, a revised Form 1099-DA, designed to enhance taxpayer privacy by omitting wallet addresses, is set to streamline compliance.
For brokers, the stakes are high. Many firms face significant costs to upgrade systems capable of tracking tax lot relief methods on a wallet-by-wallet basis. Failure to meet the 2026 deadline could result in penalties, audits, and reputational damage.
Investors: A Window to Strategise
For crypto investors, this delay is more than a technical footnote. It provides a critical opportunity to optimise their tax strategies before the rules tighten. Under the current regime, investors can use methods like HIFO, which allows them to sell the most expensive assets first, thereby reducing taxable gains.
“Choosing the right accounting method can mean the difference between paying thousands or millions in tax,” noted a financial analyst at a leading advisory firm. “But the clock is ticking – the flexibility won’t last forever.”
Investors are urged to document their transactions meticulously and consult with tax professionals to ensure compliance. Many are also taking advantage of tax-loss harvesting, a strategy to offset gains by selling underperforming assets.
Brokers Face an Uphill Battle
The delay also exposes systemic weaknesses in the crypto industry. Despite its promise of transparency and decentralisation, the infrastructure supporting CeFi platforms remains underdeveloped. Many exchanges lack the capability to track cost basis or offer tailored accounting methods.
A spokesperson for a major exchange, who declined to be named, admitted the delay was a “lifeline,” but warned that smaller brokers might still struggle to meet the 2026 deadline. “Building these systems isn’t just about compliance; it’s about ensuring trust in the market.”
Looking Ahead: The Road to 2026
The IRS’s decision to delay the mandatory FIFO accounting method marks a crucial moment for the crypto industry. It highlights the tension between the need for regulatory oversight and the logistical challenges of implementation. As brokers and investors adapt, the focus will remain on building systems and strategies to navigate this complex terrain.
For now, both sides have been granted a reprieve. But with the new deadline less than two years away, the pressure is mounting to ensure that when the time comes, everyone is ready to comply.