Last Updated on September 24, 2025 by Patrick Camuso, CPA
The IRS has intensified its scrutiny of digital asset taxation with the release of Revenue Procedure 2024-28 and Notice 2025-7. These rules have reignited a long-running debate: should taxpayers apply universal accounting across their entire crypto portfolio, can wallets be batched with only exchanges accounted separately, or must each wallet be treated as a separate repository?
Practitioners disagree. Influencers continue to argue for portfolio-wide accounting, while some Big Four firms use “wallet batching” for operational convenience. This article explains the regulatory framework, common misinterpretations, and why SegFIFO™, a methodology developed by Camuso CPA, provides the most defensible and planning-friendly solution for digital asset investors.
Revenue Procedure 2024-28: Wallet-Level Segregation and Standing Instructions
In July 2024, the IRS addressed this directly. Revenue Procedure 2024-28 states that taxpayers must apply FIFO on a wallet- or account-by-account basis. It defines a wallet or account as any discrete repository of digital assets, whether custodial or self-custodied. This change effectively shuts the door on portfolio-wide accounting and after-the-fact SpecID.
FIFO is the default method when cost basis lots are not specifically identified. FIFO assumes the earliest-acquired units are the first to be sold. Specific Identification (SpecID) is an exception, permitted if taxpayers can adequately identify which units were sold at the time of the transaction. This requires contemporaneous records.
Revenue Procedure 2024-28 confirms that SpecID remains possible if standing instructions are in place before the sale. These are pre-established, timestamped directives that specify how dispositions should occur. Without standing instructions, FIFO is the default.
Notice 2025-7: Broker Relief, Not Taxpayer Relief
In January 2025, Notice 2025-7 provided transitional relief for reporting with brokers preparing to issue the new Form 1099-DA. However, this notice governs broker reporting only. It does not alter taxpayers’ obligations or override Revenue Procedure 2024-28. Confusing the two can expose taxpayers to compliance risk.
Clearing Up Misinterpretations
Several misconceptions continue to circulate.
Some argue that Revenue Procedure 2024-28 applies only to exchanges. In reality, the text explicitly references wallets, accounts, and addresses. Others suggest Notice 2025-7 overrides the safe harbor. In fact, it applies only to brokers, not taxpayers.
A common influencer claim is that post-sale SpecID is still valid. This is incorrect. Without standing instructions or pre-sale lot IDs, SpecID does not survive an audit.
Industry Practices: Pooling, Batching, and Segregation
These interpretations have split practitioners into three camps. Influencers often promote universal accounting and/or post-sale SpecID, pooling all wallets and exchanges into a single account. This approach is outside the safe harbor and exposes taxpayers to audit adjustments. Some large firms recommend wallet batching, treating all addresses under a treasury or entity as a single account. While administratively convenient, this method still falls short.
The most compliant approach is wallet-by-wallet FIFO, or SpecID supported by standing instructions. This aligns with the statutory text, provides penalty protection, and mirrors how the IRS will audit against broker data.
Revenue Procedure 2024-28 applies to acquisitions and dispositions on or after January 1, 2025. Basis from prior years carries forward, which means firms must segment wallets now to avoid mismatches later. Suggestions that pre-2025 basis does not matter are incorrect and could lead to IRS adjustments and penalties.
Audit Implications
Starting in 2026, the IRS will receive 1099-DA data that reports cost basis by account from exchanges. Taxpayers who continue pooling wallets or batching addresses risk compliance issues. These discrepancies can trigger higher reported gains, plus accuracy related penalties.
To make this clear, think of crypto wallets like safe deposit boxes. If you store gold coins in two boxes, and you sell coins from Box A, you cannot claim they came from Box B unless you gave instructions before the sale. Universal pooling is like pretending all your boxes are one. Wallet batching is like treating every box at the bank as one. SegFIFO™ and standing instructions respect the reality: each box, each wallet, is its own repository.
SegFIFO™: From Compliance Burden to Planning Tool
Camuso CPA’s SegFIFO™ methodology applies FIFO on a wallet-by-wallet basis, fully consistent with Revenue Procedure 2024-28. SegFIFO™ not only meets compliance standards but also gives taxpayers control over when and how gains are realized with proper planning related to wallet architecture and flow of funds. Multiple silos create flexibility between tax lots and holding periods while remaining audit-defensible.
The Bottom Line
FIFO is the default, SpecID requires standing instructions or contemporaneous identification, Revenue Procedure 2024-28 applies to wallets and exchanges, and Notice 2025-7 is limited to brokers. Portfolio-wide accounting and wallet batching are non-compliant. Wallet-by-wallet FIFO and by extension SegFIFO™ is compliant, defensible, and strategically advantageous. In today’s environment, SegFIFO™ is the only method that both withstands IRS scrutiny and maximizes tax planning opportunities.
About Camuso CPA
Camuso CPA is a Forbes Best-In-State Top CPA and crypto-native accounting firm pioneering frameworks such as SegFIFO™, ChainRecon™, and the Digital Asset Tax Blueprint™. The firm specializes in crypto cleanups, audit defense, and advanced tax planning for high-net-worth investors, Web3 founders, Miners and DAOs. Its philosophy is simple. avoid shortcuts and build audit-defensible strategies that maximize long-term wealth.
Next Steps
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FAQs: FIFO, SpecID, and SegFIFO™ in Crypto Taxation
What is FIFO in crypto taxes?
FIFO (“first-in, first-out”) is the default IRS method under Treas. Reg. §1.1012-1(c). It assumes the earliest crypto units you acquired are the first ones you sell. Unless you properly document a different method, your trades are automatically treated as FIFO.
Is Specific Identification (SpecID) still allowed for crypto?
Yes, but only if you can adequately identify the lots before the sale. Under Rev. Proc. 2024-28 and §1.1012-1(j), this requires contemporaneous records or documented standing instructions. Post-sale SpecID, where you choose after the fact, is no longer compliant.
What are “standing instructions” in crypto tax reporting?
Standing instructions are pre-established, timestamped directives that specify how your lots should be disposed of when you sell. For example, you might instruct that the highest-cost ETH lots are always sold first. Without these instructions, SpecID is not valid.
What did Rev. Proc. 2024-28 change?
The revenue procedure clarified that FIFO must be applied wallet-by-wallet or account-by-account, not across your entire portfolio. It closed the door on portfolio-wide FIFO and post-sale SpecID, while also confirming the safe harbor for standing instructions.
Does Notice 2025-7 let taxpayers ignore these rules?
No. Notice 2025-7 applies only to brokers reporting transactions on Form 1099-DA. It allows brokers to default to FIFO unless taxpayers provide pre-sale instructions, but it does not override taxpayer obligations under IRC §1012 or Rev. Proc. 2024-28.
What happens if I use portfolio-wide FIFO or wallet batching?
These methods fall outside the safe harbor. When the IRS receives 1099-DA forms reporting by account, any pooled reporting will mismatch. That can lead to adjustments, higher taxable gains, and penalties under §6662.
Why is SegFIFO™ different?
SegFIFO™ applies FIFO on a wallet-by-wallet basis, exactly as the IRS requires, while also creating tax planning that investors can use to manage gains strategically. Because it falls within the safe harbor, it provides both audit protection and penalty relief under §6662(d)(2)(B).
What analogy explains this best?
Think of wallets as safe deposit boxes. If you sell coins from Box A, your basis comes from Box A. You can’t claim they came from Box B unless you identified that before the sale. Universal pooling pretends all boxes are one. Wallet batching treats all boxes at one bank as one. SegFIFO™ simply respects the rules: each box is its own repository.
