IRS Adds Digital Asset Questions to W-9 to Close Tax Gaps

The U.S. Internal Revenue Service (IRS) has introduced a revised version of Form W-9, mandating taxpayers to provide additional information related to digital assets. The update aims to enhance transparency and streamline reporting for cryptocurrency and other digital assets. The form now requires filers to indicate whether they have any financial interest in or signature authority over digital assets. This change reflects the IRS’s broader initiative to improve compliance in the rapidly evolving digital asset sector.

The new version of Form W-9, effective as of its recent release, is part of the IRS’s effort to align with new reporting requirements under the 2022 Infrastructure Investment and Jobs Act. This legislation includes provisions for financial institutions and third-party settlement organizations to report digital asset transactions, particularly to the IRS. The updated form will be used by individuals and entities required to issue Forms 1099 to payees and to provide a taxpayer identification number (TIN) for tax reporting purposes.

Tax professionals have highlighted the significance of the revised form in reducing the risk of incomplete or inaccurate reporting. With the rise of digital asset transactions, the IRS seeks to close potential gaps in tax compliance by collecting more detailed information from taxpayers at the outset. This information could be instrumental in identifying taxpayers who may have underreported income from digital assets.

The changes to Form W-9 have been accompanied by updated instructions and guidance from the IRS, aimed at clarifying how filers should respond to the new questions. The form now includes a specific field where individuals or businesses must indicate whether they hold or control digital assets. In cases where they do, filers may be subject to additional reporting requirements or audits.

Taxpayers who fail to provide accurate information on the revised Form W-9 may face penalties or increased scrutiny from the IRS. The agency has emphasized the importance of compliance, particularly as digital asset transactions continue to grow in volume and complexity. The updated form is expected to serve as a foundational tool for the IRS’s ongoing efforts to monitor and regulate digital asset activities.

The move to update Form W-9 underscores the IRS’s growing focus on digital asset compliance and transparency. As digital assets become an increasingly integral part of financial markets, the IRS is taking proactive steps to ensure that tax obligations are met by all taxpayers. The changes to the form are one of several recent actions taken by the agency to address the challenges posed by the digital asset landscape.