Here’s how digital currency platforms are relying on TIN Matching and other identity verification solutions to validate the identities of their traders and customers.
The crypto market is flooded with crypto enthusiasts and avid investors who see some kind of potential in digital assets and digital currencies.
So, they invest “real” money and buy digital assets or “crypto”.
Once the value of these digital assets hits its peak, the owner of these digital assets may seek to sell the shares to other enthusiasts to withdraw the profits.
However, most crypto trade doesn’t happen like this. The crypto market is highly unregulated and volatile, which puts an immense risk on the seller and buyer, who aren’t sure with whom they are trading their digital assets.
And the “anonymous” transactions that crypto enthusiasts leverage, make the situation worse because the seller and the buyer’s identities are encrypted. However, this has now been limited to certain crypto exchanges.
Anonymous transactions are potentially dangerous for economies because crypto is already being used as a medium to finance terrorism and money laundering.
Thankfully, the IRS decided to step in to regulate certain aspects of the crypto trade market. Exchanges are now required to verify their customers with a standard KYC procedure as regulated by the IRS.
This requires the crypto exchange to validate the identities and onboard the customers after thorough verification, regulating the crypto trade (or at least those who trade) to some extent. One such verification technique is TIN Matching or TIN Lookup.
The following will discuss in detail the importance of TIN Matching for crypto exchanges.
Let’s get to it.
What’s A Crypto Exchange?
But to start off, let’s understand what a crypto exchange is.
A crypto exchange is an intermediary between the crypto seller and the buyer. It is a “platform” for crypto buyers and sellers to meet and trade their digital assets. A good example of a crypto exchange is Binance, where you can trade bitcoin and other types of digital coins.
What Is TIN Matching?
TIN Matching is an identity verification process where the legal name and the taxpayer identification number of a person are validated against the source records (the IRS records). If the data “matches” the source records, then it’s a TIN ‘Match’. Businesses incorporate TIN Matching for a safer and regulated business or trading experience.
TIN Matching: The Mechanism Of Simple Identity Verification
Let’s assume that you’re a crypto exchange that is on-boarding customers. You would need to create unique customer accounts for each of your customers, and maintain a detailed record of their transactions and trade activity. You will also need to report the trade information on Form 1099-B at the end of the trading year.
At the time of the onboarding, you’d send a Form W-9 to your customers to obtain their TIN and legal name through a valid legal form. The customers are required to provide this information in order to qualify for trading.
You can then verify the obtained TIN and legal name against the source records through a real-time TIN Matching system, such as the one offered by Tax1099. Once the TIN and the legal name match the source records, the customer’s profile is ready for trading.
Why Do Crypto Exchanges Need TIN Matching?
Fundamentally, IRS TIN Matching enables you to prevent on-boarding high-risk profiles. Slowly, but surely, the federal government is looking at regulating the crypto industry to make it sustainable and safe for the general public.
People who invest in crypto aren’t sure how blockchain technology works. They just want to see quick profits. But that’s also the USP of crypto.
Another reason why TIN Matching is important in this narrative is that it makes the investor conscious of their investments, and as a result, their gains.
The IRS requires all taxpayers to treat crypto gains like “regular” gains. These gains will undergo a regular taxing regime, which would require the crypto buyers to pay taxes on their gains.
When a crypto exchange incorporates TIN Matching, the following advantages are enabled.
- Onboard verified customers
- Create a KYC-first ecosystem
- Assess the legal status of your customers
- Avoid “anonymous” traders who could be potential high-risk profiles
- Prevent being used as a platform for money laundering
- Prevent being used as a platform for financing terrorism
- Maintain a transparent record of all transactions
- Due diligence becomes easy
- Continued monitoring approaches can be streamlined
Did you know that Tax1099’s real-time TIN Matching enables you to verify 100,000+ TINs in less than a minute? It’s true. Tax1099 is an IRS-authorized agent, powering 200,000+ businesses with real-time TIN Matching, 1099 reporting, and other IRS form filings.
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