How the IRS’s New Revenue Procedure 2024-28 Changes Crypto Tax Reporting
The crypto world just got a significant update with the IRS’s new Revenue Procedure 2024-28, reshaping how taxpayers handle basis tracking and reporting for digital assets. Starting January 1, 2025, this safe harbor provision introduces stricter rules for tracking cost basis, emphasizing wallet- and account-specific accounting over the previously common “universal” approach. Let’s break down what this means for individuals and businesses, how to prepare, and key takeaways to avoid IRS penalties.
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What is Revenue Procedure 2024-28?
At its core, Revenue Procedure 2024-28 mandates that taxpayers track and report digital asset transactions on a wallet-by-wallet and account-by-account basis. Historically, many crypto users have relied on a universal accounting approach—like the widely used First In, First Out (FIFO) method—applied across all wallets and accounts. This new rule disrupts that simplicity, requiring:
Separate accounting for each wallet and exchange account.
Tracking unused basis—the original purchase price of unsold assets—on a per-wallet basis.
Filing taxes in a way that respects the specific cost basis of assets within distinct accounts.
For taxpayers, this shift represents a stricter framework aimed at improving clarity and reducing opportunities for tax discrepancies.
Why the New Rule Matters
The IRS has made strides to keep up with the complexities of crypto tax compliance. Until now, the agency’s approach to digital assets has been piecemeal, starting with the 2014 designation of crypto as “property” for tax purposes. While this established a foundation, updates like this new revenue procedure aim to address gaps in reporting clarity.
This new rule aligns with another IRS requirement—the forthcoming 1099-DA form—which will obligate exchanges to report the customer’s proceeds from crypto sales (in 2025), and later in 2026 to report proceeds as well as capital gains/losses and income for transactions on their platform. Together, these measures aim to close loopholes and ensure more accurate reporting.
Key Changes for Taxpayers
Wallet-Specific Accounting
Each wallet or account must now be treated as an independent ledger. Whether you hold assets in cold storage, on-chain wallets, or exchanges, each is tracked separately.
Safe Harbor Deadline
By January 1, 2025, taxpayers need to allocate their unused basis to specific wallets and accounts to qualify for safe harbor protections, shielding them from penalties for misallocation.
Specific ID vs. FIFO
The default accounting method remains FIFO (first in, first out), applied wallet-by-wallet. However, taxpayers can use Specific Identification (Specific ID), which allows more control by linking specific tokens or lots to a transaction. Within Specific ID, advanced methods like Highest In, First Out (HIFO) and Lowest In, First Out (LIFO) can be utilized.
In all cases, tax payers should remember. If pulled for audit, the taxpayer bears the burden of showing that they complied with relevant rules and regulations in their tax reporting. The most important thing any taxpayer can do is maintain accurate records, and reconcile your taxable transactions and the resulting capital gains/losses periodically throughout the year.
Practical Implications
For many taxpayers, this change will require significant adjustments. Consider these examples:
Simple Scenario
An individual holds assets in two wallets:
A cold storage wallet with Bitcoin mined in 2014.
A River account with Bitcoin purchased in 2022.
Under the new rule, gains must be calculated separately for each account. If Bitcoin is sold from the River wallet, its basis is independent of the Bitcoin in cold storage. This separationwill ensure that the tax reporting (1099-DA) from the River Financial account matches the individual’s tax filing (Form 1040, etc.). However, this change also means that taxpayers that have been using HIFO across wallets and accounts may not be able to capture higher losses or reduce gains in the way that was possible when tracking across wallets and accounts.
Complex Scenario
A business operates with 50+ wallets and multiple exchange accounts, used for various purposes like payroll, staking, or operational expenses. Transitioning to wallet-specific accounting means reconciling each account separately, a task that could be overwhelming without robust crypto tax software or professional help.
How to Prepare
Review & Consolidate Wallets
If you’ve accumulated multiple wallets over the years, consider consolidating where possible. For instance:
Migrate smaller balances into a primary wallet.
Organize accounts with clear purposes (e.g., payroll, savings, trading). Wallet hygiene goes a long way towards organized financial reporting, but also simplified tax reporting.
Use Crypto Tax Software
Ensure your crypto tax software supports wallet-by-wallet accounting. Be extremely cautious when enabling this setting—it can retroactively alter your reporting history, potentially creating inconsistencies. If this is the case, reach out for professional help to reconcile these changes in the crypto tax ledger with your prior-filed IRS returns.
Clean Up Unused Basis
Allocate the cost basis of assets in each wallet and account before January 2025. This may involve:
Moving tokens to designated wallets.
Documenting the original purchase price and acquisition date for each asset.
In complex cases, reach out for professional help to ensure a proper starting inventory of tokens by wallet and account and the unused basis for each wallet or account. Professional help can also provide you with a reliable process for a “balance sheet roll forward.”
Seek Professional Help
Crypto taxation is complex, especially under these new rules. Engage with experienced CPAs or tax advisors who understand digital assets. Their expertise can help:
Reconcile past filings.
Create robust records for future compliance.
Avoid unintentional errors that may flag an audit.
Additional Tips for Year-End Tax Planning
Harvest Tax Losses: If you’ve realized gains in 2024, consider selling underperforming assets to offset the taxable gains. This strategy, known as tax-loss harvesting, can reduce your overall tax liability.
Make Estimated Tax Payments: For non-W2 income, such as crypto trading profits, the IRS expects quarterly estimated payments. Failure to do so may result in penalties. Work with your CPA to calculate an appropriate estimated amount.
Charitable Donations: Donating appreciated crypto assets to charity can provide tax advantages. You may deduct the fair market value of the donation while avoiding capital gains tax on the appreciation. However, larger donations should be supported by a professional valuation to ensure a conservative tax approach and proper recordkeeping.
Looking Ahead
The IRS’s evolving stance on crypto taxation reflects the growing importance of digital assets in the global economy. While the new rules may seem daunting, they also offer an opportunity to establish better practices and reduce audit risks. Taking proactive steps now—like organizing wallets, consulting professionals, and preparing for 1099-DA reporting—can help you stay ahead of these changes.
As the crypto market matures and regulatory clarity improves, embracing these standards will position individuals and businesses for long-term success. Need help navigating these waters? Reach out to professionals like The Network Firm, and download resources like The Degens’s Digest to stay informed.
Get In Touch
Contact The Network Firm, the largest crypto-only CPA firm in the U.S., for expert assistance with audit, accounting, and advisory needs. Our team of professionals has extensive experience leading clients through successful engagements for varous types of crypto companies, including stablecoins, exchanges, custodians, miners, and more.
Jeremy Nau, CPA
Author Bio:
Noah has more than 15 years of attest, legal, IT and regulatory compliance experience. Noah sets the strategy and oversees execution of strategy at The Network Firm. While Noah advises public blockchain and virtual currency clients on myriad industry-specific issues, his expertise lies in licensing, IT & Security matters as well as attest and assurance reporting for Exchanges, Asset-backed token issuers, lenders and blockchain and cryptocurrency startups.
Noah is a member of the American Institute of Certified Public Accountants (AICPA), Florida Institute of Certified Public Accountants (FICPA), and a former member of the California Bar Association and International Association of Privacy Professionals (IAPP). Noah has served in active roles for working groups with the AICPA and Chamber of Digital Commerce (CODC) since 2018 and hods a current seat on the Steering Committee for C4’s Cryptocurrency Security Standard (CCSS).
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