New IRS Rules for Crypto Brokers: What You Need to Know for 2026–2027

If you deal in digital assets—like Bitcoin, Ethereum, or NFTs—whether as a broker or an investor, new IRS reporting requirements are being phased in. The IRS recently issued Notice 2025-33, which gives brokers a bit more time to adjust to these complex reporting rules. But make no mistake: these changes are coming, and they affect both brokers and taxpayers.

Here’s a simplified breakdown of what’s happening and why it matters to you or your business.

What’s Changing?

The IRS is requiring brokers (think crypto exchanges, trading platforms, etc.) to report digital asset transactions using Form 1099-DA. This new form tracks the sale or exchange of digital assets and reports that information to both the IRS and the client—just like a stock brokerage would report your stock trades.

These reporting rules were originally set to begin in 2025. Now, thanks to recent updates, there’s extended transition relief—but brokers still need to prepare.

Key Highlights for 2026–2027

No Penalties for Missed Withholding in 2026

If brokers fail to withhold backup taxes on digital asset sales in 2026, they won’t face penalties—for now. But this doesn’t mean brokers can ignore the new rules. It’s just a grace period to get systems and compliance in place.

Extra Relief for 2027, But with Conditions

In 2027, brokers can also avoid backup withholding if:

• They use the IRS’s TIN Matching Program to verify the customer’s name and tax ID number, and
• They get a successful match from the IRS

This means brokers can’t simply skip withholding—they need to be proactive in verifying taxpayer details.

Protection for Crypto-to-Crypto Transactions

If a broker withholds digital assets in a crypto-to-crypto trade (for example, selling Ethereum for Bitcoin), but the value of the withheld amount drops before it’s converted to cash, the broker won’t be penalized—as long as they liquidate the withheld assets immediately.

Why This Matters to You

If you’re a broker, investor, or business dealing in digital assets, these changes could affect your reporting, tax liability, and compliance costs. Failing to understand or prepare for the requirements could lead to IRS scrutiny—even if penalties are temporarily waived.

Even if you’re not a broker, expect to start receiving 1099-DA forms in the future if you sell crypto through major platforms. These forms will go to both you and the IRS—so reporting your gains (or losses) accurately on your tax return is critical.

Example:

You’re a Los Angeles-based NFT collector who occasionally flips digital art. In 2027, your platform sends you a Form 1099-DA showing you made $12,000 from sales. Even if you didn’t get paid in cash, you must report this income on your taxes.

Unsure How This Affects You?

The rules around crypto taxation are evolving fast, and many taxpayers—especially freelancers, creatives, and investors—could easily make filing mistakes. Working with a knowledgeable Tax Advisor Los Angeles or CPA Los Angeles can help ensure you stay compliant without overpaying.

Work with a Local Expert Who Understands Crypto and Tax Law

Whether you’re a broker, digital asset investor, or freelancer who gets paid in crypto, Velin & Associates, Inc. is here to help you stay ahead of IRS changes. We break down complex rules into real-world strategies for our clients in Los Angeles and beyond. For more information about our services, please visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org