The IRS has extended through December 31, 2026, a temporary way for some investors to identify which broker-custodied digital asset units they sold, transferred, or otherwise disposed of. The extension can help investors document which units’ cost basis and holding period apply—but it does not erase tax on gains or remove the need to keep records.
What the IRS extended
In Notice 2026-20, issued March 18, 2026, the IRS extended for one additional year the temporary relief previously provided by Notice 2025-7. The relief period covers eligible transactions from January 1, 2025, through December 31, 2026.
For eligible digital asset units held in a broker’s custody, the relief offers an alternative way to make an adequate identification of the units involved in a sale, disposition, or transfer. It is a recordkeeping and lot-identification rule—not a change to how digital assets are taxed.
How to identify units under the relief
For a transaction during the relief period, a taxpayer may identify the particular units in their own books and records no later than the date and time of the sale, disposition, or transfer. The information must be sufficient to establish the units’ basis and holding period. The notice also permits a standing order recorded in the taxpayer’s books and records as an alternative identification method.
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- Custody: The relief applies to units held in a broker’s custody.
- Timing: Record the identification by the date and time of the transaction.
- Documentation: Keep enough information to establish the basis and holding period of the identified units.
- Period: The transaction must fall within January 1, 2025, through December 31, 2026.
The notice is limited to these custodial transactions and dates. It should not be read as a blanket rule for every wallet, self-custody transaction, or tax year.
What happens if you do not adequately identify units
In the broker-custody circumstances described in the IRS’s digital assets FAQ, if a taxpayer sells, disposes of, or transfers fewer than all units of the same digital asset without communicating a specific identification or using applicable relief, the taxpayer and custodial broker treat the units as disposed of in acquisition-time order: the earliest acquired units first. The ordering does not depend on when the units were transferred to the broker.
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That default determines which units’ basis and holding period are associated with the transaction. Whether it increases or decreases a particular taxpayer’s tax depends on their transaction history and other facts; it does not necessarily produce a higher tax bill in every case.
Why basis and holding period still matter
Identifying units connects a particular disposition to the corresponding basis and holding period. The IRS extension changes the temporary method available for making that identification; it does not forgive tax on gains, make basis records unnecessary, or alter the underlying tax treatment of a digital asset transaction. Investors still need records that support the units selected and the basis and holding period attributed to them.
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How this differs from Form 1099-DA and backup withholding
Three related IRS developments address different issues:
| Issue | What it addresses |
|---|---|
| Notice 2026-20 | Temporary alternative methods for identifying eligible broker-custodied units disposed of during the relief period. |
| Form 1099-DA reporting | Broker information reporting. Gross-proceeds reporting for 2025 digital asset transactions occurs in 2026; basis reporting for certain transactions begins in 2026. The IRS describes the final broker regulations as rules intended to provide information that helps taxpayers determine obligations under existing law. |
| Notice 2025-33 | Separate broker transition relief, including specified backup-withholding and related taxpayer identification number procedures for certain 2026 and 2027 sales. |
The Form 1099-DA schedule and broker withholding procedures do not extend the unit-identification relief. A broker information return is not a substitute for the taxpayer’s own transaction records.
For the reporting context, see the IRS’s digital assets guidance and the Treasury Department’s announcement of the final broker regulations. The separate broker transition rules appear in Notice 2025-33.
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Practical recordkeeping checklist
- Confirm the units involved were held in a broker’s custody and the transaction date falls within the relief period.
- Record the specific units or an applicable standing order in your books and records by the transaction date and time.
- Keep information that links the identified units to their basis and holding period.
- Do not assume that a Form 1099-DA replaces your transaction-level records.
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