Adequate identification relief extended through 2026

The IRS extended for an additional year to Dec. 31, 2026, temporary relief provided in Notice 2025-7 that allows eligible taxpayers to use alternative methods to make adequate identification of digital asset units that are sold, disposed of, or transferred.

Under Regs. Sec. 1.1012-1(j)(3)(ii), for digital asset units held in the custody of a broker, a taxpayer is permitted to make an adequate identification of units to be sold, disposed of, or transferred by:

• Specifying to the custodial broker, no later than the date and time of the sale, disposition, or transfer, the particular units of the digital asset to be sold, disposed of, or transferred by reference to any identifier that the broker designates as sufficiently specific to allow it to determine the basis and holding period of those units.
• Using a standing order or instruction communicated to the custodial broker.

Notice 2026-20 extends the temporary relief provided in January 2025 that allows a taxpayer to make an adequate identification during the relief period of a taxpayer’s units of a digital asset to be sold, disposed of, or transferred from the taxpayer’s units held in the custody of a broker by two alternative methods:

• Identifying, no later than the date and time of the sale, disposition, or transfer, on the taxpayer’s books and records, the units to be sold, disposed of, or transferred by reference to any identifier, such as purchase date and time or the purchase price for the unit, that is sufficient to identify the basis and holding period of the units.
• Recording a standing order on the taxpayer’s books and records, provided that the recorded standing order includes sufficient information to identify any digital asset units sold, disposed of, or transferred and is entered into the taxpayer’s books and records before the units covered by the order are sold, disposed of, or transferred.

If a taxpayer makes an adequate identification, the rule that treats taxpayers whose broker offers only one method of making a specific identification as having made a standing order or instruction, does not apply. In addition, taxpayers that rely on the safe harbor under Rev. Proc. 2024-28 may rely on the temporary relief described in the notice only after the applicable requirements of Rev. Proc. 2024-28 have been satisfied.

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.