As the IRS tightens its grip on digital asset reporting, firms that fail to verify taxpayer identification numbers (TINs) early could find themselves exposed to steep penalties. According to compliance specialist Comply Exchange, proactive IRS TIN matching has become an essential safeguard rather than a nice-to-have.
The regulatory landscape is shifting rapidly, particularly for businesses handling digital assets. Amendments to Sections 6045 and 6045A have broadened the definition of a broker to capture digital asset trading platforms, payment processors and hosted wallet providers, bringing digital assets under the same reporting standards as traditional securities.
Comply Exchange highlights that the stakes are considerable. Under Section 3406, firms face backup withholding obligations, while Section 6721 imposes penalties for failing to file correct information returns. Effective compliance, the firm argues, hinges not merely on filing forms such as the Form 1099-DA, but on building a reliable and accurate information collection process from the outset.
While Notice 2024-56 offers penalty relief under Section 6721, its scope is narrow. The relief applies only to the sale and exchange of digital assets, excluding products such as rewards, airdrops and staking income, and offers no protection from backup withholding duties. Firms must therefore demonstrate good faith efforts around solicitation procedures and reasonable steps to correct errors, which is precisely where TIN matching proves its worth as evidence that withholding agents have certified account holders’ TINs.
On timing, Comply Exchange recommends collecting and validating TINs during account opening or onboarding, while noting that existing account holders may need remediation. Bulk TIN matching, the firm suggests, can help organisations “stop the initial bleed” by leveraging data already on file.
The IRS offers two routes: real time TIN checking, which delivers results within seconds and suits onboarding scenarios, and bulk or batch matching, which processes large datasets with results typically returned within 24 hours, making it ideal for periodic database sweeps ahead of reporting deadlines.
The benefits of a structured TIN matching process, according to Comply Exchange, include reduced mismatches and B-Notices, improved compliance, and significant cost savings, given penalties can reach up to $660 per incorrect return for intentional disregard. Verified TIN databases also strengthen audit readiness and support penalty abatement where reasonable cause can be shown. For firms unable to access the IRS programme directly, third-party providers such as Sovos can assist.
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