Fact vs Fiction: What the IRS Guidance Does and Doesn’t Do

On December 31, 2024, the IRS released an unexpected update expanding on Revenue Procedure 2024-28—just as many in the industry were wrapping up their year-end activities. This guidance introduces temporary relief for digital asset brokers and taxpayers facing challenges with new 1099 reporting requirements set to begin January 1, 2025. (Check out our initial outline of the new guidance)

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However, the details of this update have caused some confusion. Many mistakenly believe the IRS has delayed the 1099 reporting rule for brokers. In reality, the rule remains in place, and the guidance simply provides a temporary workaround for taxpayers to address gaps in broker technology.

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Bitwave's Pat White (CEO and Co-Founder) and Joe Dillon (Director of Customer Success) gave us a breakdown what the IRS guidance does—and what it doesn’t do—to ensure your compliance strategy is ready for 2025:

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What the IRS Guidance Does and Doesn’t Do

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What It Does:

1. Acknowledges Broker Limitations:
   • The IRS recognizes that many brokers currently lack the technical capability to accept specific taxpayer instructions or standing orders for digital asset lot identification (as required under Revenue Procedure 2024-28).
   • To address this, the IRS introduced a temporary relief period (January 1 – December 31, 2025) during which taxpayers can apply their own specific identification or standing order methodologies, overriding the FIFO calculations defaulted by brokers.
2. Empowers Taxpayers:
   • During this relief period, taxpayers can maintain their own compliance by documenting their specific identification or standing order methodologies.
3. Provides Time for Brokers to Upgrade Systems:
   • This temporary relief effectively grants brokers additional time to implement the required technological upgrades without suspending the rule itself.

What It Doesn’t Do:

1. No Delay in the 1099 Reporting Rule Implementation:
   • The requirement for brokers to begin 1099 reporting for digital assets, including cost basis and lot disposition, is still effective starting January 1, 2025.
   • Brokers must comply with this rule by filing 1099s with the IRS, even if the calculations default to FIFO.
2. No Change to Revenue Procedure 2024-28:
   • The guidance doesn’t modify the requirement that brokers must eventually accept specific taxpayer instructions or standing orders. It simply acknowledges the current gap and provides a temporary workaround for taxpayers.

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Key Takeaways

The IRS is not delaying the 1099 reporting rule for brokers. 

Instead, it’s providing flexibility to taxpayers during 2025 to document and apply their own identification methods while brokers work toward implementing the necessary systems.

This nuance is critical to understand for both brokers and taxpayers to avoid potential compliance pitfalls and ensure proper reporting.

At Bitwave, we make navigating IRS guidance simple:

• Track and document your methodology with ease – and comply with the new wallet-level inventory requirement
• Stay ready with audit-ready reporting
• Bypass FIFO defaults to ensure accurate tax reporting

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