Crypto Tax Deadline: Are You Compliant with Rev Proc 2024-28?

Crypto Tax Deadline: Are You Compliant with Rev Proc 2024-28?

Cryptocurrency has revolutionized the financial world, offering new avenues for investment and business transactions. However, as the adoption of digital assets grows, so does the complexity of managing their tax and accounting implications. The recent release of Revenue Procedure 2024-28 by the IRS has brought significant changes to how cryptocurrency accounting should be conducted, particularly around cost basis calculations. If you are a cryptocurrency investor or a business accepting digital assets, it’s crucial to understand these new requirements to ensure compliance and optimize your tax outcomes.

Understanding Revenue Procedure 2024-28

Revenue Procedure 2024-28 represents a pivotal shift in how the IRS expects taxpayers to account for cryptocurrency transactions. Previously, many taxpayers and even tax professionals relied on a more generalized approach to cost basis tracking, often using what is known as a "universal basis" method. This method allowed taxpayers to aggregate transactions from multiple exchanges and wallets into a single calculation, potentially optimizing their tax outcomes without necessarily reflecting the actual flow of funds.

For example, imagine you purchased Bitcoin on multiple exchanges—say Kraken and Coinbase—and later sold it on just one of those exchanges. Under the universal basis method, you could apply the highest purchase cost from any exchange to minimize your taxable gain, even if the Bitcoin sold was not the one purchased at the higher cost. While this method may have produced favorable tax results, it didn’t accurately represent the transactions as they occurred on the blockchain.

The Shift to Account-Based Accounting

The IRS has now clarified that this universal approach is no longer acceptable. Revenue Procedure 2024-28 mandates an account-based method for tracking cryptocurrency transactions, requiring that each transaction be traced back to its origin and accurately reported on an individual wallet or exchange basis. This means that if you purchase Bitcoin on Kraken and later transfer it to Coinbase, your accounting must reflect the purchase, the transfer, and the eventual sale on Coinbase. The cost basis must be tracked specifically for the Bitcoin held in each account or wallet.

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DISCLAIMER: The information contained herein is for informational purposes only and not to be construed as financial, legal or tax advice.

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