Cryptocurrency CPAs race to prepare clients for end of universal wallet accounting from IRS rule change

Accountants in the cryptocurrency arena have been busy preparing their clients for what they characterize as a seismic shift in digital asset reporting before the safe harbor provision ends in January. 

IRS Revenue Procedure 2024-28, released in June, effectively ends the longstanding practice of “universal wallet” reporting, where people could account for their digital assets, especially cryptocurrency, as a combined pool. Under the new rules, which go into effect at the beginning of next year, people will now need to report their holdings on an account-by-account basis. Zach Gordon, founder of cryptocurrency accounting firm Red Five, called the change “monumental.” 

“You’re talking about going from the universal wallet concept–which is imperfect without a doubt but something we can handle today–to what is, in essence, specific IDs, where every wallet needs to be treated as its own universe for tax purposes. This is a huge change, and considering how a lot of these reporting infrastructures, even on the transactional level, were built out, it’s not ideal,” he said.

To illustrate, according to Gordon, consider an entity that runs a trading algorithm with many microtransactions, hundreds or even thousands per day and possibly millions per year. Accountants will need to capture all of those transactions, trace their paths through specific wallets, and identify what is and is not taxable through it all, which theoretically can be a very time consuming process. 

The degree of ease or difficulty of helping a client through this, said Gordon, comes down largely to their overall due diligence or “wallet hygiene,” which could best be thought of as maintaining certain habits to security, privacy and effectiveness of one’s accounts. This could include tracking things like which wallets serve which purpose, which assets are held in those wallets, who has custody of them and who controls them. While these things are often on a public blockchain, and so technically auditable, it won’t always be easy. 

Pat Camuso, founder of digital asset-focused accounting firm Camuso CPA, noted that assisting clients through this change is basically a matter of tracking and tracing assets through identifying the relevant data and drilling down at the transaction level on an asset-by-asset basis. This allows them to track the flow of funds so as to, ultimately, map the client’s accounts, everything in them, and what assets are inbound and outbound. He said it’s kind of like being a forensic accountant. 

“It takes a lot of digging, a lot of piecing together, just a tangled mess of a puzzle every time. And now this revenue procedure requires that whole tangled mess to be accurate,” he said, noting that today most just try to determine gains or losses and move on. 

If someone has already been practicing proper wallet hygiene, these engagements won’t be that difficult to get through. Unfortunately, many do not. For instance, both Gordon and Camuso noted that it’s not just possible but common for people to literally forget about a wallet and lose track of just how many they have. 

“I was just looking at an account from before, we’ve been doing their accounting since 2017, and there was a painful reconciliation process that covered maybe 12-13 wallets they didn’t tell us about, and several exchanges as well,” he said. 

Because the new rules increase complexity, the engagements will become more complex, which means they will take longer and cost more. But given the difficulty of navigating the labyrinth of assets held by some clients, Camuso said there’s not much other choice. 

“[You’ll need to be] going asset by asset, down a whole list, and ensuring that everything is allocated right. You may have 25 lots of Ethereum and now we have to snapshot your wallets and allocate them appropriately to each wallet, so with that level of complication, yes, that will increase fees,” he said. As for ongoing maintenance, “it has always been that tangled mess and fees have always reflected that as a result, because there is no way around that.”

Gordon, from Red Five, noted that even just scoping these engagements out have become a little more challenging—while many CPAs are moving away from the billable hour, he said it can sometimes be a struggle to determine a fair estimate for this work. However, he said he is less concerned about the economics of the matter than he is about the timing, as there’s a lot to do and not much more time to do it. 

“It seems like everything takes way longer. There’s way more stuff to do and the deeper you get the more challenging it gets to come up with the right answer. It depends on the platform. There’s the large institutional ones, and they’re going to be okay, they will figure out a way to make sure we’re ramped up and ready to go, but there’s some of the newer [blockchains] out there, the newer platforms are working hard but these standards are very hard to maintain,” he said. 

Camuso added that many of the accounting solutions used for cryptocurrency have been coded with the universal wallet methodology in mind, and many of them have not yet adjusted to the new rules, with a few exceptions. 

Ledgible, a cryptocurrency solutions provider, is one. CEO Kell Canty noted that users have always been able to select either a universal wallet or account-by-account approach, meaning that the only real change that had to happen was disabling the former option. Making the shift, though, may not necessarily be as easy as clicking a button. Canty said that the difficulty and complexity of the operation depends entirely on the user, there is no one size fits all. Some have exhaustive books and records and rules on how they document and approach allocations, and so won’t have much difficulty; others are a little less fastidious, and so may have a more difficult time. 

Canty added that another major challenge is that there are a lot of people, some of whom may not be as sophisticated as others, who either know very little about the change or don’t even know about it at all. Something as big as this, he said, you’d think they’d be more aware, but many don’t really think much about taxes and how they’re calculated until around April or October. It’s been a tumultuous year and people’s attention is being pulled in a lot of direction, he said, and this is a very intricate and complex change, so those who aren’t professionals won’t necessarily know to look into the implications of this. 

“It will be an education process. Not just among our own users but universally for the [professionals] and platforms to educate what it will mean on a going forward basis and how the safe harbor only exists up until January 1,” he said. 

As for Ledgible itself, he said they’re gearing up for customer service because they think they will soon be getting a lot of requests from users who suddenly become aware of the change. He noted this is more complex for the average used, and what’s more they’ll have to learn about it in a compressed timeframe, which he said might cause more confusion. Ledgible is also planning for an information campaign to help users understand what is happening and why. 

“It’s a little difficult to get casual users interested in the intricacies of tax regulations, but we will try,” he said. 

Compounding the challenge is the fact that while the shift from universal wallet to account-by-account reporting is the most prominent new rule, it’s not the only one. Another big change is first-in-first-out now becoming the default methodology. For years, many cryptocurrency holders preferred a highest-in-first-out methodology, which tended to produce better tax outcomes. Switching to a FIFO default methodology could have tax consequences for those who have meticulously structured their assets the other way, said Gordon. But he added that this will be a difficult thing for the IRS to enforce and wondered whether it might later permit other methodologies like last-in-first-out. 

“If you’ve been around this industry long enough, you know that enforcing something like this is challenging because you’re dealing with a lot of unique transactions … For certain groups or individuals, LIFO might make more sense for those who are very detail oriented while specific identification might make more sense [in others],” he said. “FIFO being the law of the land is potentially a big deal and I can see there being pushback from those who are trying to file compliantly, and at the same time there are also potential tax consequences as well.” 

Camuso noted that this will also require users with multiple wallets to be more meticulous in how they structure their assets. 

“Now in 2025 they’re creating a scenario where you can’t just plug your transactions in and pick the highest cost and call it a day–you must manage funds appropriately and flow of funds must match capital gains calculations. … It is to eliminate this idea of cherry picking the highest cost basis,” he said.  

When asked about the best practices they’ve found in helping clients through this situation, both Camuso and Gordon had similar advice: maintaining accurate records, both on the part of the client and the firm. Camuso noted that making sure the calculations are accurate up to that point is really half the battle, if this is covered then the allocations will not be very complex. Meanwhile, Gordon said it’s vital to understand all the wallets involved, what transitions are related to each of them, and making sure records are updated regularly. Preparation, overall, is key. Of course, this might be a tall order in October. Stil, Camuso said it’s important to make clients aware of this and to impress upon them it’s much better to do this before the Jan. 1 deadline. 

“To the degree that someone does not follow up with me before Jan. 1, the big thing is that deadline. It’s not even Jan. 15, it’s Jan. 1. If someone is lackadaisical and overlooks that, it won’t be a good sign. Then there becomes the question of what we will do next year,” he said.