Form 1099-DA and TIN Compliance: What Digital Asset Brokers Need to Know Now
Form 1099-DA is no longer coming: it's here. Digital asset brokers are required to report gross proceeds from customer transactions beginning with 2025 activity, with forms due in early 2026. The compliance question for most exchanges isn't whether to file: it's whether their customer TIN data is accurate enough to file correctly, and what happens when it isn't.
What Form 1099-DA Requires
Form 1099-DA (Digital Asset Proceeds From Broker Transactions) is the IRS's information return for digital asset sales and exchanges. It applies to custodial brokers: cryptocurrency exchanges, hosted wallet providers, digital asset kiosks, and payment processors that facilitate digital asset transactions for customers.
The reporting requirements phased in across two years, and both are now live:
| Tax Year | What Must Be Reported | Status |
|---|---|---|
| 2025 (filed early 2026) | Gross proceeds from digital asset sales | Filed |
| 2026 (due early 2027) | Gross proceeds plus cost basis for covered securities | In progress now |
Under Notice 2025-33, the IRS granted transitional relief from reporting penalties for 2025 filings where brokers made a good faith effort to comply. That relief was for one year and it has been used. Transactions happening today fall into the 2026 filing, with basis reporting attached and no equivalent penalty cushion behind it.
Who Is Covered
The broker reporting rules apply to entities that take custody of digital assets being sold by their customers:
- Centralized cryptocurrency exchanges
- Hosted wallet providers that facilitate sales
- Digital asset kiosks that effect sales on behalf of customers
- Payment processors handling digital asset transactions (PDAPs)
Decentralized platforms are out of scope permanently, not temporarily. The separate DeFi broker regulations (TD 10021) were repealed outright under the Congressional Review Act, signed into law on 10 April 2025, and because of how the CRA works, the IRS is barred from issuing a substantially similar rule. The custodial broker regulations finalized in June 2024 were not affected and remain fully in force.
The TIN Problem for Digital Asset Brokers
For traditional 1099 filers, TIN collection happens through a W-9 request: a standard, familiar process. For digital asset brokers the challenge is scale and history. Exchanges may hold millions of accounts opened when TIN collection wasn't required or wasn't enforced, and those same accounts are now generating reportable transactions.
The problems that surface at scale:
Missing TINs Customers who onboarded before rigorous KYC may have no verified TIN on file. Without one, the broker is required to apply 24% backup withholding on reportable transactions.
Unvalidated TINs A TIN was provided at onboarding but never checked against IRS records. Self-reported TINs are frequently wrong: transposed digits, SSN and EIN confusion, name formatting that doesn't match IRS records. For backup withholding purposes, a TIN that fails IRS matching is treated the same as no TIN at all.
Name/TIN mismatches The IRS matches the name and TIN combination, not the number in isolation. A customer whose legal name on file has since changed will generate a mismatch even when the digits are perfect.
Foreign customer misclassification Accounts that self-identified as non-US at onboarding, but whose activity suggests US tax residency, carry a separate exposure, and this one has a deadline attached. See below.
The Backup Withholding Relief Provision, and Why 2027 Is the Deadline That Matters
Notice 2025-33 sets out relief on a sliding scale, and it tightens each year:
| Year | Relief available |
|---|---|
| 2025 | Penalty relief for reporting failures, on a good faith effort |
| 2026 | Relief from backup withholding liability and associated penalties |
| 2027 | Relief only where the broker submits the customer's name and TIN to the IRS TIN Matching Program and receives a match |
That last row is the one to plan around. In 2026 the relief is broad. From 2027 it is conditional, and the condition is a specific, documented act: name and TIN submitted to IRS TIN matching, with a confirmed match on file.
Notice 2025-33 also provides two further 2027 accommodations worth knowing:
- Relief where withheld digital assets lose value in an asset-for-asset exchange, provided the broker immediately liquidates the withheld assets for cash
- Relief on sales to customers not previously classified by the broker as U.S. persons during 2027, a direct acknowledgement of the misclassification problem above, and a window to get those accounts documented
A customer base of any size cannot be validated in the weeks before a filing deadline. Brokers who reach the end of 2026 with a validated TIN on every reportable account walk into 2027 with the condition already met.
What Good TIN Compliance Looks Like for Digital Asset Brokers
Step 1: Map the gaps in your customer TIN data Run your full customer database to find accounts with missing TINs, unverified TINs, or TINs never submitted to IRS matching. That output is your liability map, and it is worth producing before you need it.
Step 2: Collect what's missing Trigger a W-9 collection workflow for US persons and the appropriate W-8 series form for non-US persons. Customers who decline to provide a TIN are subject to 24% backup withholding on reportable transactions.
Step 3: Validate every TIN against IRS records Submit name/TIN combinations through IRS TIN matching at onboarding and again ahead of filing. The second pass catches stale data: a TIN that was correct two years ago attached to a legal name that has since changed.
Step 4: Resolve mismatches before you file Follow up for corrected information on every failed match, and document each attempt. That documentation is your reasonable cause record if penalties are ever assessed.
Step 5: Apply backup withholding where it's required Where a customer doesn't respond and the TIN remains unvalidated, apply 24% backup withholding to reportable transactions going forward, record it, and remit on schedule.
How TIN Comply Helps Digital Asset Brokers
TIN Comply is built for the scale and workflow that 1099-DA compliance requires:
- Bulk TIN Matching: submit your full customer list in a single file and receive IRS match results across every record, with no per-record handling
- API Integration: validate at account opening rather than at filing time, so the gap never opens in the first place
- Sanctions and Watchlist Screening: every customer screened against hundreds of global sanctions, enforcement and watchlists in the same call, which matters more in digital assets than in almost any other sector
- FATCA GIIN and LEI Validation: supporting documentation checks for the non-US accounts that sit behind your W-8 population
- EIN Lookup: cross-reference business records to recover the correct identifier when a TIN returns a mismatch
- W-9 Collection: automated outreach, digital collection and instant validation in one workflow
- Audit Trails: every result timestamped and exportable, which is the form your reasonable cause record needs to take
Start a free trial and run your customer TIN file through IRS matching.
Bottom Line
2026 is the first year 1099-DA carries cost basis, and those forms are due in early 2027. The same year brings the change that matters more: from 2027, relief from backup withholding liability applies only where a broker has submitted the customer's name and TIN to the IRS TIN Matching Program and received a match.
Brokers who spend the rest of 2026 validating their customer base meet that condition before it applies. Brokers who wait are validating millions of accounts against a deadline, with 24% withholding as the alternative.
This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for guidance specific to your organization.