Updated July 29, 2026. Quick answer: If you do not identify the lot, the regulation picks for you. Treas. Reg. §1.1012-1(c)(1): where a taxpayer sells shares acquired on different dates or at different prices and does not adequately identify the lot, the shares sold are charged against the earliest lot acquired. That is first-in, first-out — usually your lowest basis, and usually your longest-held shares. Those two cut in opposite directions.
The default rule, quoted
Treas. Reg. §1.1012-1(c)(1): “if a taxpayer sells or transfers shares of stock in a corporation that the taxpayer purchased or acquired on different dates or at different prices and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period …”
Note that it sets both the basis and the holding period, and that is why the default is not simply bad. Your earliest lot is typically your cheapest, which maximises gain. It is also typically held longest, which is what qualifies the gain as long-term. FIFO gives you the worst basis and the best holding period simultaneously.
| If you tender… | Basis | Holding period |
|---|---|---|
| Earliest lot (the default) | Usually lowest — largest gain | Usually longest — long-term |
| A recent, higher-priced lot | Higher — smaller gain | May be short-term, taxed as ordinary income |
| A recent lot held over a year | Higher | Long-term |
The choice that looks clever and is not. Reaching for a high-basis recent lot to shrink the gain can convert long-term treatment into short-term, and short-term gain is taxed as ordinary income. The lot with the smallest gain is not always the lot with the smallest tax. The row that usually wins is a higher-basis lot that has nonetheless been held more than a year.
What “adequate identification” requires
It is not a mental decision or a note in your own records. The regulation’s identification rules require specification to the party effecting the transfer, with confirmation back — and in a tender offer the party effecting the transfer is the company or its agent, not a brokerage app with a lot-selection dropdown. That is the practical gap: the mechanism most people rely on for public shares does not exist here. If lot selection matters to you, it has to be specified in the tender paperwork and confirmed in writing before the window closes.
The identification rules sit at Treas. Reg. §1.1012-1(c)(2), (c)(3) and (c)(4); this page states that they exist and what they are for rather than reproducing them, because the operative question is whether your company’s process can accommodate one at all. The window in which to ask is short — twenty business days is the federal floor.
Sources
Treas. Reg. §1.1012-1(c)(1), with the adequate-identification rules at (c)(2), (c)(3) and (c)(4); IRC §1222(3) and (4). Fetched July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A tender offer runs on documents specific to your company and your grants, and nothing here tells you whether to sell.