IRS Expands Digital Asset Regulations: TIN Validation Key to Compliance

As the IRS broadens its focus to include digital assets, businesses must take proactive steps to ensure compliance. Amendments to Sections 6045 and 6045A now treat digital asset platforms, payment processors, and wallet providers as brokers, placing them under the same reporting rules as traditional securities.

To assist companies, Comply Exchange has highlighted the importance of using the IRS TIN Matching Program for accurate tax reporting. The program ensures correct Taxpayer Identification Numbers (TINs) are collected, helping avoid penalties, especially with Section 3406's backup withholding requirements and Section 6721 penalties.

IRS Expands Digital Asset Rules: TIN Validation Crucial for Compliance

Although Notice 2024-56 offers some relief for digital asset sales, it excludes rewards, staking, and backup withholding obligations, making TIN matching even more critical.

Best practices include validating TINs during account setup, with real-time matching providing immediate results for onboarding and bulk matching helping to clean up existing records before reporting deadlines.

The advantages are clear: fewer errors, enhanced compliance, reduced penalty risks (up to $660 per incorrect return), and smoother customer interactions. While direct access to the IRS platform may be limited, third-party providers like Sovos offer solutions to support businesses' compliance efforts.

For further guidance, industry experts from Comply Exchange, Sovos, and Legible have shared best practices through a podcast, with more updates anticipated. Businesses can also subscribe to the Comply Connect newsletter for ongoing insights.