“These regulations are an important part of the larger effort on high-income individual tax compliance,” IRS Commissioner Danny Werfel said in a statement. “We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets.”

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Enacted in 2021 via the Inflation Reduction Act, yearly digital asset reporting was estimated to raise nearly $28 billion over a decade, according to the Joint Committee on Taxation. However, the original start date was postponed.

The new IRS regulations come roughly four months after the agency hired two former crypto executives to improve digital currency service, reporting, compliance and enforcement programs.

“Everybody’s been waiting for the tidal wave of this enforcement activity,” James Creech, an attorney and senior manager at accounting firm Baker Tilly, previously told CNBC.

With limited reporting on basis, crypto investors have the chance to establish a “reasonable allocation” before Jan. 1, 2025, according to an IRS revenue procedure released Friday.

Taxpayers need to assign basis for each digital currency wallet by the end of 2024, said Matt Metras, a Rochester, New York-based enrolled agent and owner of MDM Financial Services.  

If you bought digital currency over several years across multiple wallets, you currently have “different basis lots,” he said.

Crypto tax software often uses the best basis from your combined accounts to calculate gains. But going forward, each asset’s basis must be “specific to the wallet,” Metras said.

It’s important to establish digital currency basis because, generally, if you can’t prove your basis, the IRS considers it zero, which calculates a bigger profit.

The new crypto tax reporting rules won’t apply to the upcoming tax season.

However, “2024 is the most important tax year for crypto investors to be reporting,” said Andrew Gordon, tax attorney, certified public accountant and president of Gordon Law Group.

For 2024, you still need to collect crypto data and properly report activity, including your cost basis. Starting in 2025, the IRS will have a “firehose of information” to verify whether past reporting was accurate, Gordon said.