The IRS and U.S. Treasury have updated the timeline for compliance with the new Form 1099-DA rules, granting brokers an extra year of relief from backup withholding penalties for certain digital asset transactions.
What is Form 1099-DA?
- Introduced under 2024 regulations, Form 1099-DA is required for brokers reporting digital asset sales and exchanges by customers.
- Effective January 1, 2025, it mandates reporting of gross proceeds, with additional basis and gain/loss data phased in through 2027.
What Notice 2025-33 covers
On June 12, 2025, the IRS issued Notice 2025-33, extending several key aspects of transition relief:
- Backup withholding relief through 2026: No penalties for brokers failing to withhold taxes on digital asset sales during 2026.
- TIN-matching exemption for 2027: No backup withholding if a broker gets a match through the IRS TIN Matching Program.
- Asset depreciation protection: No penalties if digital assets lose value during withholding and are liquidated immediately for cash.
- Additional time for classifying customers: Relief applies to brokers who haven’t yet determined a customer’s U.S. person status in 2027.
Why it matters
- Operational flexibility: Brokers get time to upgrade systems and processes.
- Phased enforcement: The IRS continues its step-by-step rollout of Form 1099-DA compliance from 2025 through 2027.
- Taxpayer alignment: More consistent tax reporting for digital assets helps investors stay compliant.
Timeline at a glance
2025
- Report gross proceeds on Form 1099-DA
- Relief from backup withholding penalties under Notice 2024-56
2026
- Begin reporting cost basis and gains/losses
- Relief from backup withholding extended through 2026
2027
- Additional relief for TIN-matched customers
- Special provisions for depreciation and non-classified U.S. persons
What brokers should do now
- Register for the IRS’s TIN Matching Program.
- Update systems to track:
- Gross proceeds from digital asset sales (2025)
- Cost basis and gains/losses (2026–2027)
- Wallet addresses, asset IDs, and transaction metadata
- Monitor IRS updates for future changes.
Bottom line
While Notice 2025-33 delays certain penalties, brokers are still on the clock to prepare for Form 1099-DA reporting. These phased relief measures provide flexibility, but full compliance will be expected by 2027.
This content is brought to you by the FingerLakes1.com Team. Support our mission by visiting www.patreon.com/fl1 or learn how you send us your local content here.