IRS Provides Transitional Relief for Digital Asset Reporting

Via Notice 2025-33, the IRS extended transition relief from backup withholding tax liability and penalties for brokers that do not withhold and pay the backup withholding tax for digital asset sales or exchange transactions that occur in 2026.  Brokers will not be required to backup withhold for digital asset sales or exchange transactions occurring in 2027 for customers, or payees. Brokers will be required to submit the payee’s name and tax identification number to the IRS (via their TIN Matching Program) and receive an IRS response confirming that the name and TIN match IRS records.  The notice also provides relief for failure to withhold and pay the backup withholding tax due, if the failure is due to a decrease in the value of withheld digital assets in a sale of digital assets in return for different digital assets in 2027, assuming that the broker immediately liquidates the withheld digital assets for cash.  For more information on the reporting requirements that apply to digital asset transactions, visit Tax Facts Online. Read More: Link to Q7724.  Note: Q is updated.