Update on Digital Asset Reporting Requirements
In a significant update for the digital asset market, the U.S. Department of Treasury, in conjunction with the Internal Revenue Service (IRS), has released Notice 2025-33. This notice amends and prolongs the transition relief initially offered in earlier guidance for brokers engaged in transactions involving digital assets.
Overview of Form 1099-DA Requirements
This notice specifically pertains to the upcoming requirement for brokers to file Form 1099-DA, which is used to report proceeds from customer transactions involving the sale or exchange of digital assets. As per previous announcements, the final regulations set by Treasury and the IRS will mandate brokers to start submitting these reports by January 1, 2025. Furthermore, it includes stipulations around providing statements to payees and the requirement to conduct backup withholding on certain transactions.
Extension of Transition Relief
“In response to feedback indicating that brokers feel unprepared to meet these new obligations, the IRS has decided to extend existing transition relief measures first introduced in Notice 2024-56.”
This earlier guidance allowed brokers to avoid penalties associated with failing to comply with the reporting mandates for the year 2025 and offered some limited backup withholding relief for transactions carried out in 2026.
Details of Notice 2025-33
Under the new Notice 2025-33, brokers will receive extended relief from backup withholding penalties for any failures related to transactions made in 2026. Moreover, if brokers work with a customer and successfully match their name and tax identification number with IRS records through the TIN Matching Program, they will no longer be required to withhold amounts for transactions conducted in 2027.
Additional Provisions
Additional provisions are included for scenarios where brokers may fail to withhold the complete backup withholding tax due to fluctuations in the value of withheld digital assets during exchanges in 2027, provided they promptly liquidate those assets for cash.
Furthermore, the notice recognizes that certain customers, who have been previously classified incorrectly by brokers as non-U.S. persons, will benefit from additional relief for digital asset sales occurring in 2027. This further step is aimed at easing the compliance burden on brokers operating within this increasingly complex financial landscape.
