US IRS Extends Crypto Tax Exemption for One Year, FIFO Mandatory Rule Delayed Until End of 2026

The Internal Revenue Service (IRS) announced on March 18, 2026-20, that the temporary tax relief measures for cryptocurrencies will be extended until December 31, 2026. The primary reason for this extension is that many custodial crypto brokers have not yet completed the necessary technical systems to accept customer-specific digital asset identification instructions. This situation objectively prevents some taxpayers from fully identifying their assets and exposes them to the risk of being compelled to apply the FIFO (First-In, First-Out) rule.

Reason for the Extension: Delays in Technical Readiness

According to the IRS, many custodial crypto brokers have informed the Treasury Department and the IRS that they have established systems to report total digital asset transaction gains for 2025 and will file these reports with the IRS and their clients in 2026. However, these brokers also indicate that while most work on accepting customer-specific identification information is nearly complete, they are currently unable to accept specific identification instructions other than long-term instructions. They expect to complete the relevant system development in 2026.

Without this extension, prior to the implementation of these systems, all sales, dispositions, or transfers of digital assets held by such brokers would automatically be confirmed under the FIFO rule—that is, assets purchased first are considered sold first—leaving taxpayers without any temporary relief. Notice 2026-20 is issued precisely to prevent this scenario.

Details of the Extension and Its Scope

Under the extended temporary relief provided by Notice 2026-20, the key arrangements are as follows:

Alternative Method for Submitting Identification Notices to Brokers: During the extension period, taxpayers may record specific digital asset identification information or long-term instructions in their own books and records instead of submitting notices to brokers. This will be considered sufficient identification, thereby avoiding the automatic application of the FIFO rule.

Does Not Apply to Non-Broker Custodied Assets: Digital assets held in self-custody are outside the scope of this relief, and different ordering rules apply to these assets.

Does Not Affect Reporting Requirements: The temporary relief does not apply to digital asset reporting obligations; in 2026 transactions, the cost basis reported by brokers may differ from the taxpayer’s own records, and taxpayers should verify and confirm these details independently.

Background: Origin of FIFO and Sufficient Identification Rules

In July 2024, the U.S. Treasury and IRS issued final regulations specifying how to determine which units of digital assets are considered sold, disposed of, or transferred when a taxpayer holds multiple units with different purchase dates or prices in the same wallet. For assets held by brokers, regulations allow taxpayers to explicitly designate specific units before sale; if no such designation is made, FIFO is automatically applied.

The IRS also issued Revenue Procedure 2024-28, providing a safe harbor to guide taxpayers on transitioning from a general tax basis allocation method to a per-wallet or per-account basis, especially for digital assets acquired before January 1, 2025, without an attached basis.

Frequently Asked Questions

Q: What does Notice 2026-20 allow taxpayers to do?
A: Taxpayers can record specific digital asset identification information or long-term instructions in their own books and records before December 31, 2026, instead of submitting identification notices to brokers. This will be considered sufficient identification, thereby avoiding the automatic application of FIFO.

Q: Why does the IRS need to extend the original relief again?
A: Many custodial crypto brokers have not yet completed the technical systems necessary to accept customer-specific identification instructions. Without this extension, all crypto transactions held by these brokers would be forced to apply FIFO before the systems are ready, regardless of taxpayer intent.

Q: Does this relief also apply to self-custodied crypto assets?
A: No. The temporary relief under Notice 2026-20 applies only to digital assets held by brokers. Self-custodied assets are governed by different ordering rules, and this relief does not cover them.