IRS extends deadline on some crypto broker withholding

The Treasury Department and the Internal Revenue Service are giving some cryptocurrency brokers additional time to comply with requirements to withhold taxes on digital asset sales and avoid penalties.

In Notice 2025-33, they extended and modified the transition relief provided last year in Notice 2024-56 for brokers who are required to file Form 1099-DA, Digital Asset Proceeds From Broker Transactions reporting certain digital asset sale and exchange transactions by customers.

In 2024, Treasury and IRS announced final regulations requiring brokers to report digital asset sale and exchange transactions on Form 1099-DA, furnish payee statements, and backup withhold on certain transactions starting Jan. 1, 2025. The IRS also announced in Notice 2024-56 transition relief from penalties related to information reporting and backup withholding tax liability required by these final regulations for transactions effected during 2025. Notice 2024-56 also provided limited transition relief from backup withholding tax liability for transactions effected in 2026.

The IRS said it has received and carefully considered comments from the public about the transition relief provided in Notice 2024-56 indicating that brokers needed more time to comply with the reporting requirements; today's notice addresses those comments.

In the new Notice 2025-33, the Treasury and the IRS extended the transition relief from backup withholding tax liability and associated penalties for any broker that fails to withhold and pay the backup withholding tax for any digital asset sale or exchange transaction effected during calendar year 2026.

The Trump administration has been notably more supportive of the crypto industry since taking office, relaxing guidance at the Securities and Exchange Commission as well.

The notice also extends the limited transition relief from backup withholding tax liability for an extra year. That means brokers won't be required to backup withhold for any digital asset sale or exchange transactions effected in 2027 for a customer (payee), if the broker submits that payee's name and tax identification number to the IRS's TIN Matching Program and receives a response that the name and TIN combination matches IRS records. They're also granting relief to brokers that fail to withhold and pay the full 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, and the broker immediately liquidates the withheld digital assets for cash.

This notice also includes more transition relief for brokers for sales of digital assets effected during calendar year 2027 for certain customers that haven't been previously classified by the broker as U.S. persons. 

However, there are some caveats on the one-year extension. "As a reminder, these rules and deferrals only apply to sales/exchanges of digital assets," wrote Jessalyn Dean, vice president of tax information reporting at Ledgible, a digital asset tax and accounting company, in a LinkedIn post. "If a crypto provider is paying income type payments, like interest on loans or staking rewards, backup withholding requirements already apply today and remain unchanged. Additionally, these transactions are already reportable on other Forms 1099 (e.g. 1099-MISC) and do not fall under Form 1099-DA withholding and reporting rules."

She noted that there is no delay announced in the notice regarding the filing of Forms 1099-DA in the first quarter of 2026 for sales and exchanges in 2025 by brokers, such as centralized exchanges, payment processors and other principals and agents in the sale or exchange of digital assets.

"The 2025 sales will only report gross proceeds and no cost basis," she added. "Cost basis reporting begins Jan. 1, 2026 for sales/exchanges of assets acquired from that date. So far, those deadlines are still firm until we hear otherwise."

The IRS only announced a delay of one year for most of the 24% backup tax-withholding requirements on sales of digital assets, she pointed out. Originally set to begin Jan. 1, 2026, they will now begin Jan. 1, 2027. Thus, there's no tax withholding on sales and exchanges in 2025 nor in 2026.