IRS Extends Transition Relief for Digital Asset Brokers

On Thursday, June 12, 2025, the Internal Revenue Service (IRS) extended and modified transition relief for digital asset brokers required to report specific customer transactions on Form 1099-DA, Digital Asset Proceeds From Broker Transactions. The decision responds to feedback from brokers requesting additional time to meet compliance requirements.

According to Notice 2025-33, the IRS extended relief from backup withholding tax obligations and related penalties for digital asset sales or exchanges in 2026. Brokers are exempt from withholding and paying backup taxes for these transactions during that year. Additionally, the notice extends limited relief from backup withholding tax liability through 2027. For transactions in 2027, brokers must submit a customer’s name and Taxpayer Identification Number (TIN) to the IRS’s TIN Matching Program, ensuring the name and TIN align with IRS records.

The IRS also addressed scenarios involving digital asset sales in 2027, where one digital asset is exchanged for another. If the value of withheld digital assets decreases, brokers who promptly liquidate these assets into cash will not face penalties for failing to withhold the full backup tax amount. Further, the notice provides relief for brokers handling transactions in 2027 for customers not previously identified as U.S. persons.

These updates build on final regulations announced in June 2024, which mandated that brokers report digital asset transactions on Form 1099-DA, provide payee statements, and apply backup withholding starting January 1, 2025. In Notice 2024-56, the IRS had previously granted penalty relief for information reporting and backup withholding for 2025 transactions, with limited relief extended to 2026.

The IRS considered industry feedback highlighting the need for extended reporting timelines before issuing the new transitional measures.