Entity Setup
Entity Setup: What the “No Penalty if Digital Asset Broker’s Basis Info Doesn’t Match Yours” Rule Means for Your Startup
The IRS has extended temporary relief allowing a mismatch of digital asset basis records between brokers and taxpayers. Essential reading if your startup deals with digital assets.
By NomadicTax Research Team • 5-8 min read • May 13, 2026
## What Is the New IRS Relief for Digital Assets?
In April 2026, under **Notice 2026-20**, the IRS extended temporary relief concerning **adequate identification of digital asset units** held in custody by a broker. This relief lets taxpayers use alternative methods to specify which units of digital assets are sold, transferred, or disposed—without matching every acquisition date or lot notation that the broker uses. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
The relief applies during the **relief period**, defined as **January 1, 2025 through December 31, 2026**, and affects transactions involving digital assets held in broker custody. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
## Why It Matters for Startups and Foreign Entities
- **Recordkeeping stress is reduced**: Without a clear matching basis from the broker, sole proprietorships, LLCs, or startups dealing in crypto or NFTs no longer need to chase precise lot-by-lot basis records.
- **Flexibility in identification method**: you may use either:
- *Specific identification*—referring to acquisition date, price, etc., or
- *Standing orders* or other reasonable scheme captured in your own books. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
- **However**, note: this relief does **not** apply to digital assets **not held in custody of a broker**, and it doesn’t affect the broker’s reporting obligations under Section 1.6045-1. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
## Example: How It Helps Your Startup
Say your LLC bought 10 different units of a cryptocurrency over time: some are held by Exchange A (your broker), others transferred to your own wallet. Under this relief, for units held at Exchange A, you can decide—day before selling—which units they are, using your own bookkeeping methods. For the assets stored off-broker, that relief doesn't apply—you’ll need precise records for those.
If you sold units from broker custody, but your broker reports different basis lots or dates, you won’t be penalized, provided you identify them properly in your own records. But the broker still must report gross proceeds correctly. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
## Actionable Steps for Entity Setup and Compliance
- Put in place a recordkeeping system that lets you tag digital asset units with acquisition date, cost, and quantity ahead of time. Even if the broker doesn’t support lot tracking, your books should.
- If part of your assets will be held off-broker (e.g. self-custody), maintain separate detailed records for those—not relying on this relief.
- Consult a tax advisor if your jurisdiction is multi-national. Some foreign tax systems don’t recognize this relief, and double taxation issues may arise.
- Prepare for transition: this relief ends **December 31, 2026**. After that, stricter identification may be required. ([irs.gov](https://www.irs.gov/irb/2026-15_IRB?utm_source=openai))
## Risk Points to Watch
- If your startup uses digital assets heavily, ensure you don’t gradually escape the relief’s scope (e.g., move more assets off broker custody thinking relief applies everywhere).
- Don’t misidentify units just to reduce tax liability; make sure methods are defensible.
- Keep your tax filings transparent: use acknowledgments or disclosure statements where possible if basis lots differ between you and your broker.
**Bottom line**: For startups dealing with digital assets and entities activating operations, this relief reduces friction around cost basis documentation—but it’s temporary and scope-limited. Plan now to build strong internal systems that survive post-2026.