What's different here
- Form 1099-DA. Under the final broker regulations, custodial digital-asset brokers report gross proceeds on sales and exchanges effected on or after January 1, 2025, on Form 1099-DA, and cost basis on covered transactions from January 1, 2026. Notice 2024-56 waived penalties for good-faith 2025 filings and waived backup withholding for 2025 transactions; for 2026, the backup-withholding relief applies where the broker obtained the customer's TIN and received a match from the IRS TIN Matching Program. Notice 2024-57 deferred reporting for wrapping, staking, lending, liquidity-provider and certain other transactions until further guidance.
- DeFi. The separate rule that would have treated certain non-custodial ("DeFi") front-end providers as brokers was repealed by Congress under the Congressional Review Act in 2025; non-custodial platforms are outside 1099-DA reporting unless new rules are issued.
- TIN collection is the whole game. The IRS's withholding relief is conditioned on a TIN that has been submitted to TIN Matching and matched. A platform that collected TINs but never matched them has no relief, and 24% backup withholding on gross proceeds from digital-asset sales is operationally brutal (it comes out of the sale, in kind or in cash).
- Which regime for which flow. A payment platform settling transactions for merchants is a payment settlement entity (1099-K at $20,000 / 200 transactions). A platform paying creators or contractors is a 1099-NEC payer. A neobank or yield product paying interest is a 1099-INT payer. A crypto exchange is a 1099-DA broker. Many fintechs are two or three of these at once, and the vendor master, the payout ledger and the customer base each need their own TIN discipline.
- KYC and TIN are not the same check. Identity verification confirms a person exists and matches an ID; TIN matching confirms the name/TIN pair exists in IRS records. Synthetic identities pass one and fail the other, which is why doing both at onboarding is the fraud control as well as the tax control.
- Foreign customers document with a W-8 and are generally outside 1099-DA and 1099-K, but sourcing and chapter 3 withholding can apply to interest and other FDAP income.
Design points
- Collect the W-9 electronically at signup with the certification text and e-signature, and match the name/TIN pair by API before the account is funded; store the match result and date as evidence for the withholding relief.
- For existing customers, run a bulk match of the whole base and solicit corrections before the next 1099-DA/1099-K/1099-INT cycle.
- Model backup withholding as a ledger feature (a withholding flag on the account, applied at disposition or payout), not a year-end report.
- Keep the sanctions screen on the same customer record; OFAC has designated digital-asset addresses and mixers, and screening customers is table stakes.
- Track the notice landscape: the 1099-DA rules are still being phased in, and the transition relief has dates.