Firms that wait until filing season to verify taxpayer details are gambling with penalties, according to a new analysis from Comply Exchange, which argues that proactive IRS TIN matching has become essential as digital asset reporting rules tighten.
The regulatory ground is shifting fast. Amendments to Sections 6045 and 6045A have widened 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.
The stakes are sharpened by backup withholding requirements under Section 3406 and penalties for incorrect information returns under Section 6721. Comply Exchange stresses that compliance goes far beyond filing forms such as the Form 1099-DA; it depends on a reliable, accurate information collection process from the outset.
There is limited relief on offer, but firms should not get comfortable. Notice 2024-56 offers penalty relief under Section 6721, yet it applies only to the sale and exchange of digital assets. Rewards, airdrops and staking income fall outside its scope, and it provides no relief from backup withholding obligations. Filers must instead demonstrate good faith, showing proper solicitation procedures and reasonable steps to correct errors. TIN matching, Comply Exchange notes, is precisely how a withholding agent evidences that it has certified account holders’ TINs.
On timing, the firm’s advice is clear: collect and validate TINs at account opening or onboarding. Organisations may also need to remediate existing account holders while embedding new procedures, with bulk TIN matching a useful way to “stop the initial bleed” using data already on file.
The IRS offers two routes. Real time TIN checking delivers results within seconds and suits onboarding or individual checks, while bulk or batch matching processes large datasets, typically returning results within 24 hours, making it ideal for periodic sweeps of an entire customer or vendor database ahead of reporting deadlines.
The payoff, according to Comply Exchange, spans error reduction, improved compliance, and time and cost savings, with penalties reaching up to $660 per incorrect return for intentional disregard. Early validation also cuts customer friction and strengthens audit readiness, supporting reasonable cause defences under Section 6721.
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