Revenue Procedure 2024-28 and Crypto Tax Compliance

Over time, you have stored digital assets like Bitcoin, Ethereum, and some NFTs in different wallets and exchanges. Now, the IRS wants you to report your holdings and transactions more accurately. Have you heard about Revenue Procedure-2024 28?

It introduces new rules that change how you track and report your crypto assets for tax purposes. This piece explains what these rules mean for you, how to comply, and what steps you need to take as the new requirements go into effect. Let’s break it down in a simple way.

The Backstory: Universal vs. Wallet-Specific Tracking

For years, many crypto investors, including you, have used a universal method to track the cost basis of digital assets. This approach pools all your holdings across different wallets and exchanges into one combined record. When you sell or trade a portion of your assets, you calculate the gain or loss based on this overall pool instead of tracking each wallet separately.

This method has been convenient, especially for those who frequently transfer assets between wallets and exchanges. It allows you to calculate taxable events without worrying about where a specific coin was originally stored. However, the IRS sees this as a problem because it creates inconsistencies and makes verifying the accuracy of reported gains and losses harder.

Revenue Procedure 2024-28 changes this by requiring a “wallet-by-wallet” or “account-by-account” approach. Under this new rule, you must track the cost basis of your digital assets separately for each wallet or exchange account. If you buy Bitcoin in one wallet and transfer it to another, you must maintain a record of that movement rather than treat all your holdings as a single entity. This shift aims to improve tax compliance and eliminate reporting discrepancies.

Why the Change?

The IRS wants better transparency and accuracy in digital asset tax reporting. Inconsistent record-keeping has led to errors, underreported gains, and confusion about taxable events. By enforcing wallet-specific tracking, the IRS ensures that each transaction is properly documented, making audits and verifications more straightforward.

Another key reason for this change is the growing adoption of cryptocurrency. As more people invest in digital assets, regulators are tightening oversight to align crypto tax reporting with traditional financial assets like stocks and bonds. The IRS sees digital currencies as property, and just like stocks, they require precise cost-basis tracking.

This rule also helps prevent tax avoidance strategies where users move funds across wallets to obscure their cost basis. The IRS makes it harder to manipulate cost-basis calculations by requiring records for each wallet and exchange account, ensuring taxpayers correctly report their gains and losses.

While this change adds complexity, it also brings benefits. You will have clearer records of your crypto transactions, reducing the risk of misreporting and potential penalties. Following these guidelines can ensure a smooth transition and avoid compliance issues as the new rules take full effect.

IRS Revenue Procedure 2024-28: The Safe Harbor Provision

With the IRS enforcing stricter cost-basis tracking rules for digital assets, many taxpayers may struggle to transition from the universal method to wallet-specific tracking. Revenue Procedure 2024-28 introduces a safe harbor provision to ease this shift, allowing taxpayers to adjust their records without immediate penalties or complications. Let’s break down how this works and what it means for you.

The Role of the Safe Harbor

The IRS Revenue Procedure 2024-28 safe harbor provision is a temporary solution for taxpayers using the universal cost basis method. It lets you transition to the new wallet-specific approach while preserving any unused cost basis from your previous calculations. It allows you to reorganize your records before the new rules become fully enforceable.

For example, if you purchased Bitcoin at different times across multiple exchanges and treated all those holdings as a single pool, you must track them separately. Under the safe harbor, you can distribute your existing cost basis across your wallets and exchange accounts based on a global allocation method, which the IRS allows as a one-time adjustment. This ensures you do not lose any cost basis that you would have been entitled to under the previous system.

Why the Revenue Procedure 2024-28 Matters

This provision is important because it prevents unfair tax consequences during the transition. Without it, you might face difficulties proving the original cost of assets stored in different wallets, leading to overpaying taxes or unnecessary complications.

Suppose you bought 2 Ethereum tokens, one at $1,000 and another at $2,000, using the universal method. If you transferred these ETH between wallets over time, it may be unclear which cost basis applies to each unit when you sell them. The safe harbor provision lets you fairly distribute your original cost basis to ensure accurate tax calculations under the new system.

The IRS also benefits from this approach. Giving taxpayers a structured way to shift their reporting minimizes disputes and inconsistencies when the new requirements go into effect. It also encourages compliance by providing a clear path forward for individuals and businesses managing large crypto holdings.

What’s the Deadline for the Change?

To take advantage of the safe harbor, you must meet the IRS deadline of January 1, 2025. This means that by this date, you should have:

1. A record of migrating from universal to wallet-based tracking.
2. Used a global allocation method to apply your existing cost basis to each of your wallets and exchange accounts.
3. Ensured that the previous system properly accounted for all transactions and transfers before this date.

After this deadline, safe harbor protection will not apply to any digital assets acquired or received on or after January 1, 2025. Any crypto you buy or transfer from this date forward must follow the new wallet-specific tracking method without any exceptions.

It’s also important to note that only taxpayers who still hold digital assets with an unused cost basis on January 1, 2025, qualify for the safe harbor. You won’t need to apply the transition rules if you sell all your crypto before this date. However, if you retain assets into the new year, you must ensure that your records reflect the proper cost basis under the revised method.

Your Options for Transitioning

To comply with the new rules, you have two primary methods to allocate the cost basis of your existing digital assets as of January 1, 2025:

Specific Unit Allocation

This method involves assigning specific units of your digital assets to particular wallets or accounts. For instance, if you purchased 2 Bitcoins on March 1, 2022, at $30,000 each and held them in Wallet A, you would continue to associate these specific Bitcoins with Wallet A. This approach requires meticulous record-keeping, as you need to track each unit’s acquisition date, purchase price, and exact wallet or account.

Global Allocation

Alternatively, you can opt for a global allocation method. This involves applying a consistent rule across all your holdings. For example, you may allocate your earliest acquired assets to Wallet A and later acquisitions to Wallet B. It’s crucial to establish and document this allocation method before January 1, 2025, and adhere to it consistently.

Steps to Ensure Crypto Tax Compliance

To stay on the right side of the IRS and avoid tax complications, you must take proactive steps before the new rules take effect. Here’s what you should do:

1. Review Your Current Tracking Method: Check whether you have been using the universal cost basis method or are already tracking assets on a wallet-by-wallet basis. You must switch to the new tracking system if you have been pooling your assets across multiple wallets and exchanges.
2. Compile a Complete Record of Your Transactions: Gather detailed records of all your crypto transactions, including purchases, sales, transfers, and conversions. Ensure that each transaction includes the date, amount, price, and wallet or exchange where it occurred. If you’ve moved assets between wallets, make sure you have documented those transfers.
3. Allocate Your Cost Basis Using the Global Allocation Method: If you qualify for the safe harbor, distribute your cost basis across your wallets and exchanges before the deadline. This process ensures that you retain any unused basis and transition smoothly to the wallet-specific tracking method.
4. Use Crypto Tax Software or Professional Assistance: Consider using crypto tax software or working with a tax professional to automate tracking and ensure compliance. Many platforms can help organize your transactions, apply the correct cost basis method, and generate IRS-compliant reports.
5. Adjust Your Record-Keeping Practices for 2025 and Beyond: Going forward, track all crypto transactions separately for each wallet or exchange account. Ensure that every purchase, sale, and transfer is recorded accurately with the correct cost basis. Avoid mixing assets from different wallets without proper documentation.
6. Stay Updated on IRS Guidelines: Keep an eye on IRS updates and any additional guidance related to crypto tax reporting. Regulations may evolve, and staying informed will help avoid unexpected crypto tax compliance issues.

Vezgo: The API for Seamless Crypto Tax Compliance

As IRS regulations tighten, manually tracking and reporting crypto transactions has become increasingly complex. Vezgo provides the ultimate solution for automating crypto tax reporting and ensuring compliance with Revenue Procedure 2024-28. With Vezgo, you can eliminate the hassle of manually consolidating data from multiple wallets and exchanges. The API seamlessly integrates with your tax software or financial platform, automatically retrieving transaction histories, cost basis, and real-time market values.

Furthermore, Vezgo is an all-in-one crypto data aggregation solution. Through its powerful API integration, you can access over 30 centralized exchanges (CEXes), 21 blockchains, and 250 wallets, significantly expanding your coverage. This seamless integration ensures that your records are always updated, no matter where your assets are stored or how often they move. The API delivers real-time, standardized data, eliminating inconsistencies caused by different exchange reporting formats. This means no more struggling with missing transaction details or incorrect tax calculations. Everything is accurate, structured, and ready for compliance.

Beyond tax automation, Vezgo prioritizes security using bank-grade encryption and secure authentication protocols to protect your financial data. Unlike many third-party aggregators, Vezgo does not store sensitive information, reducing the risk of breaches. Whether you are an individual taxpayer, a tax professional, or a financial service provider, Vezgo ensures you stay compliant while simplifying your crypto management. With IRS regulations becoming more stringent, there has never been a better time to integrate Vezgo into your workflow and take full control of your crypto tax reporting.