The IRS released Notice 2026-20, allowing eligible taxpayers to use alternative methods of adequate identification under Treas. Reg. § 1.1012-1(j)(3)(ii) for digital asset units held in broker custody through December 31, 2026. This extends the temporary relief first provided in Notice 2025-7 for an additional year.
For digital assets held in the custody of a taxpayer’s broker, Treas. Reg. § 1.1012-1(j)(3)(ii) permits taxpayers to make an adequate identification of the units to be sold, disposed of, or transferred by communicating to the broker using an identifier, standing order or instruction. If no such adequate identification is made or the broker has no mechanism to receive such an adequate identification, the FIFO rule applies.
Due to concerns that brokers may not have systems prepared to support customer’s adequate identification of digital assets held in the broker’s custody, the IRS has extended the transitional relief period for taxpayers to make adequate identification of digital assets held in broker custody through December 31, 2026. Through the relief period, taxpayers can make adequate identification of digital assets held in broker custody by recording or identifying lots in their own books and records. It is not necessary to communicate an adequate identification to the broker.
Notice 2026-20 can be found here.
