In Notice 2026-20 (released March 18, 2026), the IRS allows taxpayers to continue using alternative methods to make an adequate identification of digital asset units through December 31, 2026, rather than being required to provide instructions to the digital asset broker.

Background

In July 2024, the Treasury Department and IRS published final regulations (TD 10000) on the information reporting of sales of digital assets (see Tax Alert 2024-1385). The final regulations included ordering rules for brokers to determine which units of the same digital asset should be treated as sold, disposed of, or transferred (and therefore, what the basis of that digital assets is) when a customer owns multiple units of that same digital asset and acquired them on different dates or at different prices (some of which may have been transferred to brokers).

At the same time, the IRS provided a safe harbor method in Revenue Procedure 2024-28 for taxpayers to allocate any unused basis among digital assets they owned as of January 1, 2025. Subject to certain restrictions, taxpayers could make any reasonable allocation of unused basis to a wallet or account that holds the same number of remaining digital asset units.

Under IRC Section 1012 and its regulations, taxpayers must determine cost basis separately for each account when dealing with specified securities, including digital assets. Treas. Reg. Section 1.1012-1(j) outlines how to identify which units of a digital asset are considered sold or transferred when multiple units are held. For digital assets held by brokers, taxpayers must clearly specify to the broker which units are being sold by the time of the transaction, or the assets are considered sold in a first-in, first-out order. Under the regulations, merely identifying the digital assets in the taxpayer's books and records would not be sufficient.

In December 2024, the IRS issued Notice 2025-7, which allowed taxpayers to make adequate identifications under Treas. Reg. Section 1.1012-1(j) of broker-held digital assets using books-and-records methods for 2025. The relief was granted because many custodial brokers had not yet completed systems that would allow taxpayers to specify which of their digital assets should be sold.

Notice 2026-20

Notice 2026-20 extends the temporary relief originally provided in Notice 2025-7 through December 31, 2026. Eligible taxpayers may therefore continue to identify assets sold based on their own books and records for all transactions conducted through a broker during the relief period (January 1, 2025 through December 31, 2026).

During the relief period, taxpayers may make an adequate identification for broker-held digital assets by:

• Identifying in their books and records — no later than the transaction date — the specific units being sold, disposed of or transferred, using any identifier that establishes basis and holding period
  Or
• Recording a standing order in its books and records before the relevant units are sold, disposed of or transferred, provided the order includes sufficient information to identify affected units

Taxpayers that have met the requirements of the safe-harbor-basis-allocation process under Revenue Procedure 2024-28 may also use the temporary relief in Notices 2025-7 and 2026-20.

If the taxpayer clearly identifies in its own records which digital asset units were sold, disposed of, or transferred in 2026, those units count for federal income tax — even if the broker's records do not match. If the taxpayer instead tells the broker (by the sale or transfer date) exactly which units to use, using the broker's required details, then those units count for tax purposes.

The temporary relief does not apply for purposes of the Treas. Reg. Section 1.6045-1 information-reporting rules. Therefore, basis and acquisition data reported on Form 1099DA for 2026 transactions may differ from the taxpayer's asset identification.

Implications

Brokers continue to build their systems for Form 1099-DA reporting; in many cases the reporting requirement has taken precedence over other features of their systems, such as specific identification. Notice 2026-20 gives brokers additional breathing room to build specific identification while creating challenges for customers. With cost-basis reporting starting in 2026, customers and the IRS may not give brokers time beyond the end of this year to put specific identification functionality into their systems.