The IRS's Notice 2026-20 is a short document that most crypto holders will never read and many will feel anyway. It extends, by one year, a piece of temporary relief that has been quietly holding the crypto tax system together: the permission to identify which units of a digital asset you sold on your own books and records, instead of telling your exchange at the moment of sale. That permission now expires on December 31, 2026 — and the notice itself spells out the side effect that will define the 2027 filing season: the basis and acquisition dates your broker reports "may not match" the ones on your books.

This guide summarizes what the notice actually says, directly from the primary document; what it deliberately does not change; and what the hard end date means in practice for anyone who holds crypto on an exchange and picks their tax lots anywhere other than that exchange's interface — which, today, describes almost everyone using crypto tax software.

This is not tax advice. It's a summary of an IRS notice, with links to the primary documents, so you know which questions to bring to a professional. For decisions about your own return, talk to one.

The rule the relief suspends

Since January 1, 2025, cost basis for digital assets is tracked per wallet and per account, and the final regulations (§ 1.1012-1(j)) prescribe ordering rules for deciding which units you sold when a wallet holds units bought at different times and prices.

For units held in a broker's custody, the baseline rule — § 1.1012-1(j)(3)(ii) — is stricter than most people realize: to specifically identify the units you're selling (say, the high-basis lot rather than the oldest one), you must specify those units to the broker, no later than the date and time of the sale, using an identifier the broker accepts, or have a standing order in place with that broker. Choosing a lot inside your tax software, after the fact, is not what the regulation describes. And if no adequate identification is made, the default is not "whatever my software computed" — it's the regulation's FIFO rule: the units are deemed sold in order from the earliest acquired in that broker's custody.

The problem, when the rules took effect, was that exchanges largely had no way to receive such instructions. So the IRS issued Notice 2025-7, giving taxpayers a temporary alternative for calendar year 2025. Notice 2026-20 is the sequel.

What Notice 2026-20 actually provides

The notice extends the relief period of Notice 2025-7 by one year. Per its Section 3.03, the relief period now runs from January 1, 2025 through December 31, 2026. During that window, for units held in a broker's custody, you may make an adequate identification without telling the broker, in either of two ways (Section 4.02):

  1. Per-sale identification on your own books. No later than the date and time of the sale, record on your own books and records which particular units are being sold, by reference to an identifier sufficient to establish their basis and holding period — purchase date and time, or purchase price.
  2. A standing order on your own books. Record a standing order — a rule such as an ordering method that identifies which units any future sale draws from — with enough information to identify the units sold, entered in your books before the sales it covers.

Three conditions frame the relief. It applies only to units in a broker's custody — coins in your own unhosted wallets are under the separate rules of § 1.1012-1(j)(1) and (2), and the notice doesn't touch them. Taxpayers relying on the Rev. Proc. 2024-28 safe harbor for allocating pre-2025 basis can use the relief only after that allocation's requirements are satisfied (Section 4.04). And under Section 4.03, while you're using the relief, the regulation's rule that treats a broker's sole identification method as your standing order is switched off — your books, not the broker's default, control.

Section 4.05 then states the payoff plainly: if you made an adequate identification on your books under the notice, then for federal income tax purposes the units sold are the ones your books identify — regardless of whether the broker's reported information matches.

Why extend? The notice is unusually candid: certain custodial brokers informed the Treasury and IRS that they've built the systems to report gross proceeds for 2025 transactions, and have made good-faith efforts on systems to accept specific-identification instructions, but many are "not currently ready to accept specific identifications (other than standing orders)" — with completion expected during 2026. Without an extension, customers of those brokers would have been forced onto FIFO for no fault of their own.

What the relief does not change — and where the mismatches come from

Here is the sentence in the notice that matters most for the 2027 filing season. The relief does not apply to the broker information-reporting rules under § 1.6045-1. Consequently, in the notice's own words:

for 2026 transactions, the acquisition date and basis reported by a broker to a taxpayer with respect to a sale, disposition or transfer of digital assets may not match the lot identification and basis of that sale, disposition or transfer on the taxpayer's books and records.

Unpack the timing and you see why this lands in early 2027. The 2026 tax year is the first for which Form 1099-DA carries cost basis for covered assets, with forms furnished in early 2027. Those forms are built from what the broker knows — typically its own default lot ordering, plus whatever basis it has for coins it custodied from acquisition. If your 2026 lot choices lived on your books under this notice, the broker never heard about them. Both sides followed the rules, and the two documents disagree anyway: different lots, different acquisition dates, different basis, different gain per sale.

The notice's answer to whose number wins is Section 4.05 — your adequately documented books govern your tax result. But the 1099-DA is what the IRS receives, so the difference has to be reconciled on your return rather than ignored: that's an adjustment on Form 8949, generally with code B, backed by the books-and-records identification you made at the time. A mismatch you can document is paperwork. A mismatch you can't is a dispute.

What changes on January 1, 2027

Section 5 of the notice is one paragraph and it closes the door: taxpayers may not rely on the relief for sales, dispositions, or transfers made after the relief period ends. For broker-held units sold on or after January 1, 2027, the baseline regulation applies in full again:

The practical consequence is easy to miss: after 2026, a lot-method setting inside your tax software — HIFO, or any specific-identification strategy — is not, by itself, an adequate identification for coins in a broker's custody. If the broker didn't receive the instruction, the units the tax law deems sold are the FIFO units, whatever your software computed. The mismatch that in 2026 was a reporting nuisance your books could override becomes, for 2027 sales, a case where the broker's FIFO-based 1099-DA may be the figure that actually governs — surfacing in the 2028 filing season as gains you didn't plan, on lots you didn't intend to sell.

So the 1099-DA friction arrives in two waves. The 2027 season (2026 returns): the first basis-bearing 1099-DAs land, and books-vs-form mismatches are expected — the notice says so — and resolvable with documentation. The 2028 season (2027 returns): for anyone who kept picking lots in software without telling their broker, the mismatch stops being resolvable by documentation, because the identification itself was never validly made.

How to prepare before December 31, 2026

None of this requires waiting for the deadline.

  1. Finish the Rev. Proc. 2024-28 prerequisite. The relief — including for your remaining 2026 sales — is available only once the safe harbor allocation's requirements are satisfied. If your pre-2025 basis was never deliberately allocated, that's the first gap to close, with a professional if needed.
  2. Put your 2026 lot choices in writing now. For the rest of the relief period, a standing order recorded in your own books — dated, specific about the ordering method, entered before the sales it covers — is what turns your software's lot selection into an adequate identification. An undocumented intention is not an identification.
  3. Find out what your broker can actually accept. The notice exists because brokers were still building these systems, with completion expected during 2026. Check what your exchange's interface offers — a lot-method setting, a standing-order election, per-sale selection — and set it to match how you actually account. From 2027, that broker-side setting is the identification.
  4. Align your software with the broker, not the other way around. From 2027 on, for broker-held units, a software lot method that differs from the broker instruction isn't an aggressive strategy — it's a bookkeeping error waiting for a 1099-DA to expose it.
  5. Expect the 2026 forms to disagree, and keep the receipts. When the first basis-bearing 1099-DA arrives in early 2027, reconcile it against your books before filing rather than assuming either side wins by default. The rows most likely to mismatch are the same ones that mismatch for basis generally: transferred-in coins, and lots identified anywhere the broker couldn't see.

One boundary worth restating: all of the above is about coins in broker custody. Your self-custody wallets never had this relief and don't lose it — but they're where basis breaks for different reasons, chiefly transfers the record-keeping never linked. That side is checkable today: run my free scan to see every transfer between your own Ethereum addresses that a tax tool would book as a zero-basis sale — read-only, no sign-up, tx-hash on every line.

FAQ

What does IRS Notice 2026-20 actually do?

It extends the temporary relief of Notice 2025-7 for one more year, through December 31, 2026. During the relief period, taxpayers may make an adequate identification of which broker-held digital asset units they sold by recording the identification — per-sale or as a standing order — on their own books and records, instead of communicating it to the broker by the time of sale as § 1.1012-1(j)(3)(ii) otherwise requires. If they do, their books determine the units sold for federal income tax purposes even where the broker's reports differ.

What happens if I don't give my broker a specific identification after 2026?

For sales of broker-held units after December 31, 2026, the notice's relief is unavailable, so the regulation's default applies: without an adequate identification made to the broker, units are treated as sold FIFO — earliest acquired in that account, first out. A lot choice recorded only in your tax software would not change that. If your broker offers only one identification method, the regulation treats using it as a standing order.

Will my Form 1099-DA match my tax software's numbers?

For 2026 transactions, possibly not — Notice 2026-20 itself says the broker-reported acquisition date and basis "may not match" your books, because the relief lets your identification live in your records while the broker reports from its own. If your books contain an adequate identification, they govern your tax result, and the difference is reconciled on Form 8949 with documentation. For sales after 2026, the way to keep the form and your books aligned is to put your lot instruction where the broker can see it.

Does Notice 2026-20 apply to my self-custody wallets?

No. The relief covers only units held in the custody of a broker, and the notice states it does not apply to units outside broker custody. Self-custody holdings follow the separate ordering rules in § 1.1012-1(j)(1) and (2), and their most common basis problem isn't lot identification at all — it's transfers between your own wallets that tax software fails to link, producing $0-basis disposals.

This is not tax advice, and none of the above is a substitute for a qualified tax professional who can look at your actual records.

If you'd rather find the broken links in your self-custody history before the broker forms start arriving, Verilot Check reads your Ethereum wallets directly on-chain and flags every transfer between your own addresses that would otherwise be booked as a zero-basis sale, with a tx-hash on every line. Free and read-only — no wallet connection, no sign-up, up to 5 wallets and 500 events per scan, on Ethereum mainnet, Base or Arbitrum One (one chain per scan). Run my free scan.