SECTION 2. BACKGROUND

On October 9, 2019, the Internal Revenue Service (IRS) posted Virtual Currency FAQs (“FAQs”) on https://www.irs.gov ² explaining how existing tax principles apply to virtual currency, including cryptocurrency, held by taxpayers as capital assets. FAQs 39-40 explain that a taxpayer may choose the units of virtual currency deemed to be sold, exchanged, or otherwise disposed of if the taxpayer can specifically identify which unit or units are involved in the transaction and is able to substantiate the basis of those units either by documenting the specific unit’s unique identifier or by records of the units held within a single account, wallet, or address showing:

(1) the date and time each unit was acquired;

(2) the taxpayer’s basis and the fair market value of each unit at the time it was acquired;

(3) the date and time each unit was sold, exchanged, or otherwise disposed of; and

(4) the fair market value of each unit when it was sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.

FAQ 41 further explains that if a taxpayer does not identify specific units of virtual currency as the units sold, exchanged, or otherwise disposed of, then the units are deemed to have been sold

in chronological order beginning with the earliest unit the taxpayer purchased or acquired; that is, on a first in, first out (FIFO) basis.

Section 1012(c)(1) requires that in the case of the sale, exchange, or other disposition of a specified security on or after the applicable date for that security, the conventions prescribed by the regulations must be applied on an account-by-account basis. Section 1012(c)(3) defines, for purposes of this section, the terms “specified security” and “applicable date” by incorporating the definitions for these terms in section 6045(g)(3). Section 80603 of the Infrastructure Investment and Jobs Act, Pub. L. No. 117-58, 135 Stat. 429, 1339 (2021) expanded the definition of a specified security to include digital assets with an applicable date of January 1, 2023.

Section 6045(g)(3)(D) generally defines a digital asset, for purposes of information reporting by brokers, as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.

On August 29, 2023, the Department of the Treasury and the IRS published in the Federal Register (88 FR 59576) proposed regulations (REG-122793-19) (2023 proposed regulations) under sections 6045, 1001, and 1012, among others. The 2023 proposed regulations, in part, clarified the statutory requirements for determining and identifying the cost basis of digital assets. Consistent with section 1012(c) (2), the proposed regulations would have required basis determination on an account-by-account basis.

For units left in the custody of a broker, proposed § 1.1012-1(j)(3)(ii) provided that the taxpayer can make an adequate identification of the units sold, disposed of, or transferred, if the taxpayer specifies to the broker, no later than the date and time of such disposition, the particular units of the digital asset to be disposed of by reference to any identifier (such as purchase date and time or purchase price paid for the units) that the broker designates as sufficiently specific to allow it to determine the basis and holding period

1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code or the Income Tax Regulations (26 CFR part 1).

2 Since October 9, 2019, the FAQs have been revised and renumbered. References to FAQ numbers in this revenue procedure are to the numbering in the version of the FAQs as of June 6, 2024.

July 29, 2024 326 Bulletin No. 2024–31

FAQs 39-41 as permitting, or at least not prohibiting, specific identification of units or application of the FIFO rule based on a so-called universal or multi-wallet approach because the FAQs do not explicitly limit the specific identification or FIFO rule to units held within a single account, wallet, or address, and noting that the rules of proposed § 1.1012-1(j) would apply differently from the basis identification rules adopted by those taxpayers based on their reading of FAQs 39-41. The comments expressed the view that transitioning from the universal or multi-wallet approach to the single wallet or account-based rules in the 2023 proposed regulations, if adopted in the final regulations, could lead to ongoing discrepancies between a taxpayer’s basis records and the basis reported to the taxpayer by brokers on Forms 1099DA, Digital Asset Proceeds From Broker Transactions, and that these discrepancies could be further exacerbated by the limitations of current basis-tracking software.

On June 28, 2024, final regulations (T.D. 10000) were filed with the Federal Register (89 FR 56480) (2024 final regulations). The 2024 final regulations adopted the 2023 proposed regulations with certain modifications in response to comments and public hearing testimony. Section 1.1012-1(h) and (j) of the 2024 final regulations will apply to all acquisitions and dispositions of digital assets on or after January 1, 2025. This revenue procedure is being issued contemporaneously with the 2024 final regulations to assist taxpayers who may have specifically identified units or applied the FIFO rule based on a universal or multi-wallet approach in transitioning to the rules in § 1.10121(j) of the 2024 final regulations, which apply the specific identification or FIFO rules to units held within a single wallet or account. Subject to the requirements set forth below, this revenue procedure generally permits taxpayers to rely on any reasonable allocation of units of unused basis to a wallet or account that holds the same number of remaining digital asset units based on the taxpayer’s records of such unused basis and remaining units. The allocation must be a reasonable allocation within the meaning of section 5.02 of this revenue procedure and must be made as

of January 1, 2025; however, the taxpayer may identify the method of allocation and may comply with the requirements set forth in section 4.02 of this revenue procedure at a later date to the extent permitted by section 5.02(4) or 5.02(5)(b) of this revenue procedure.