Deep dive into Revenue Procedure 2024-28 cost basis requirements for US-based crypto enterprises by January 1, 2025.

Cryptio sat down with BDO’s digital assets tax professionals — Anthony Aniello, Jack Karagulleyan, and Edward Mason — to discuss the implications of Rev. Proc. 2024-28. This Treasury update, introduced in June 2024, outlines essential transition guidance for how certain taxpayers must allocate cost basis for digital assets acquired prior to January 1, 2025.

Key insights

• Who it Impacts: US-based companies’ tax reporting.
• What's Changing: No more 'universal' cost basis application.
• When It Begins: Starting January 1, 2025.

Let’s explore these practical considerations with Cryptio and BDO, who are here to help navigate cost basis compliance requirements.

Context on Revenue Procedure 2024-28

Starting January 1, 2025, Rev. Proc. 2024-28 states that digital assets that are sold, exchanged, or disposed of must adhere to rules that establish the basis of assets (like First-In, First Out (FIFO) or Specific Identification (Spec-ID) on a single account or individual address basis. The initial guidance provided by the Service (Virtual Currency FAQs Q38-41) was drafted with sufficient ambiguity to allow a taxpayer to aggregate digital asset data across multiple accounts and addresses for transactions (universal transaction approach). Rev. Proc. 2024-28 will require taxpayers to consider how to handle digital asset transaction hygiene in the future, as more detailed and transparent record-keeping is necessary. Luckily, the Service has provided transitional relief if taxpayers follow the requirements outlined in Rev. Proc. 2024-28.

Taxpayers must identify the specific digital asset being sold or transferred by the date and time of the transaction. This Spec-ID must be made at the time of sale or transfer.  If no specific identification is provided, the FIFO method will automatically apply.

Rev. Proc.  2024-28 provides a safe harbor permitting taxpayers to make reasonable allocations for units of cost basis, under certain circumstances, for digital assets held in multiple accounts or wallets before 1/1/2025. The safe harbor is provided for digital assets that were a capital asset in the hands of the taxpayer (in addition to other eligibility requirements).  Rev. Proc. 2024-28 was issued alongside the final broker reporting regulations to assist taxpayers in transitioning from prior practices of applying the specific identification rules based on a universal approach to the rules provided in the final regulations, which apply the specific identification or FIFO method to the units held by each wallet which the digital assets were disposed or transferred.

Considerations for crypto enterprises

As the deadline approaches, we discussed some considerations:

1. Taxpayers should spend time understanding if they have applied the rules correctly in prior years. If not, they should confirm they meet all the safe harbor eligibility requirements and consider applying the transitional guidance to determine the best method of allocating their unused basis prior to January 1, 2025.

2. Moving from the universal wallet standard to wallet-by-wallet tracking creates additional complexity in tracking the basis of your assets. Cryptio’s technology tracks the transition from universal and automates basis tracking for the new standard.

3. Updating and maintaining detailed records:

Pursuant to the IRS Cryptocurrency FAQs (Q38-41) and Rev. Proc. 2024-28 taxpayers must keep granular level details on their digital asset transactions or this will lead to being disqualified from the safe harbor protections. There may be challenges depending on the exchange used and the level of detail available (e.g., for either method in the safe harbor, you need to have a tax basis for every lot and be able to see that at the wallet level). Taxpayers should understand the level of data available for each lot on their exchanges.

4. Understanding allocation methods – Specific or Global:

Specific – involves allocating specifically identified units of unused basis to either a pool of remaining digital assets or to specific units of remaining digital assets within each wallet. This method may be more difficult of the two methods and must be tied to the unique characteristics such as purchase price and acquisition date. Must complete this method before the earlier of (i) the date and time of first sale or disposition completed on or after 1/1/25 or (ii) either the due date of the taxpayer’s return for the taxable year that includes 1/1/25 , or if taxpayer is not required to file a return, the last date for filing the return for such year that would be applicable if the taxpayer were required to file a return.

Global – involves allocating units of unused basis by a predefined rule (like highest basis first or acquisition date) prescribing the manner by which units of unused basis will be ordered and then allocated to a pool of remaining digital assets within each wallet. However, this rule must be established before Jan 1, 2025.

Timing issue: If using specific method, you must make the specific identification prior to selling, transferring, or disposing of asset on or after Jan 1, 2025. For Global, the methodology must have been predetermined before the effective date.

What planning opportunities are there on easing the administrative burdens?

• Start this analysis as soon as possible to understand options available
• BDO has a framework checklist to ensure you are following the law properly
• Consider wallet/account setup for each account to confirm compliance with these rules prospectively
  Note: Non-compliance will create discrepancies along with other issues for future sales of digital assets.

5. Tax-loss harvesting - Consider strategies to allocate unused basis to maximize tax benefits based on company profile.

6. Transaction costs – final regulations provide that the full amount of transaction costs paid in connection with a sale or other disposition of digital assets is allocated to the disposition even in an exchange of digital assets that are not materially in kind.

7. Still operating in Excel? Using a product that lacks functionality? Cryptio provides both FIFO by wallet and a rules-based spec ID to help automate these requirements. All of which is supported by SOC compliance.

Get started with Cryptio

Trusted by 450+ crypto enterprises, including Uniswap, Worldcoin, and Chivo (El Salvador), Cryptio offers both universal and per-wallet cost-basis allocation solutions. Ensure compliance and financial integrity as the regulatory landscape evolves. Speak to our expert team today.