As tax regulation evolves to include digital assets, businesses must shift from reactive to proactive compliance strategies. A key focus has been the expanded scope of Section 6045 and 6045A, which now categorises digital asset trading platforms, wallet providers, and payment processors as brokers. This change subjects them to the same IRS reporting standards as traditional securities, creating new obligations for tax information collection and verification.
To help firms stay compliant, Comply Exchange recently delved into the IRS TIN matching program and why firms should be proactive.
In parallel, Section 3406’s backup withholding requirements and the penalties under Section 6721 for incorrect filings underscore the need for accurate taxpayer data. Meeting these obligations goes beyond filing a Form 1099-DA—it demands a reliable verification process. Proactive Taxpayer Identification Number (TIN) matching with the IRS is one such process that can significantly reduce the risk of non-compliance and avoid costly penalties.
Although Notice 2024-56 offers some relief from penalties for digital asset sales and exchanges, it excludes other digital-related transactions such as airdrops and staking rewards. Crucially, this notice does not exempt firms from backup withholding responsibilities. Demonstrating a good-faith effort in collecting and validating TINs is essential—and this is where the IRS TIN Matching Program comes in. It helps withholding agents certify account holder TINs and show compliance with IRS expectations.
Organisations are encouraged to collect and validate TINs at the earliest stage—typically during onboarding. Reviewing existing records is also important, as remediation may be required for accounts opened under less stringent procedures. A bulk TIN match can help address gaps efficiently, using information already on file to correct and prevent reporting errors.
The IRS offers two submission methods: Real Time TIN Matching and Bulk TIN Matching. Real-time checks provide immediate feedback and are ideal for new customer or vendor setups. Bulk TIN matching is better suited for reviewing large datasets and preparing for reporting deadlines. Each method has distinct benefits, and choosing the right one depends on the organisation’s needs and risk appetite.
The benefits of TIN matching are significant. It reduces errors, improves compliance, and helps prevent penalties—currently as high as $660 per inaccurate return for intentional disregard. It also streamlines operations and enhances customer experience by preventing transaction delays and reducing follow-up requests.
For deeper insights into tax documentation best practices, industry experts from Comply Exchange, Sovos, and Legible recently shared their perspectives in a podcast discussion.
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