New Legislation Modernizes Tax Rules for Digital Assets, Improving Access to a Growing Market and Maintaining America’s Competitive Advantage

WASHINGTON, D.C. - Ahead of a Ways and Means legislative hearing on digital asset taxation, Ways and Means Committee Members unveiled legislation that will create the landmark framework for digital asset taxation rules and ensure the United States remains the digital asset capital of the world. Today's status quo imposes excessive reporting burdens on Americans that make use of digital assets impractical, while ambiguous tax rules invite exploitation from bad-faith actors. The hearing will examine legislation that reduces paperwork and promotes tax compliance for the use of digital assets in everyday commerce, clarifies rules for common digital asset transactions, and applies longstanding tax policies to digital assets.

Ways and Means Committee Chairman Jason Smith (MO-08) released the following statement:

"This effort represents months of careful study and thoughtful input by members of the Ways and Means Committee to create the right rules of the road for digital asset taxation. With the explosive growth of the digital asset ecosystem and the over 60 million Americans who own cryptocurrency, the status quo of unclear tax rules is untenable. The United States is the digital asset capital of the world today, but other countries who have instituted clear, comprehensive tax policy could one day claim that title if we fail to enact clear rules that modernize our laws for the digital asset economy. The Committee's legislation addresses key gaps in the tax code, including parity in tax treatment with comparable traditional financial asset transactions, clarity for tax situations unique to digital assets, and reduction in paperwork burdens for digital asset owners and brokers. I look forward to examining the merits of these bills with Committee members and outside experts to move our digital asset tax policy forward."

Legislation to be considered at the hearing:

H.R. 9178 - Less Tax Paperwork for Digital Asset Owners Act (Rep. Rudy Yakym)
Promotes administrability of the tax code by reducing paperwork burden digital asset transactions in everyday commerce.

• Requiring separate reporting for every digital asset transaction, no matter how small or routine, is punitively burdensome and administratively inefficient.
• This bill streamlines the reporting process and eases the burden by:
  • Excluding gain or loss on digital assets used to pay a network fee;
  • Excluding gain or loss on regulated U.S. dollar stablecoins; and
  • Creating an election for a simplified accounting method for digital assets.

Read bill text here.

H.R. 9175 - Tax Clarity for Mining and Staking Act (Rep. Mike Carey)
Promotes clarity by establishing transparent, coherent rules for mining and staking rewards.

• Newly minted digital assets, created by a network to reward participation, do not cleanly fit existing tax principles, resulting in confusion and noncompliance.
• This bill confirms that acquisition of newly minted digital assets is ordinary income but allows taxpayers to elect to treat newly minted digital assets in a manner similar to self-created property.
• Consistent with IRS guidance, the bill also allows grantor trusts that hold digital assets to receive staking rewards without jeopardizing their tax status.
• The bill provides clarity for taxpayers who engage in mining and staking of digital assets and helps maintain America's leadership in the digital asset economy.

Read bill text here.

H.R. 9173 - Charitable Deductions for Digital Asset Donations Act (Rep. Mike Kelly)
Provides parity between digital assets and traditional financial assets for charitable deductions.

• Currently, taxpayers must pay to obtain an appraisal before claiming a deduction for digital assets donated to charity, even if the value is obvious.
• This bill exempts digital asset donations from the qualified appraisal requirements if the donated property meets certain criteria designed to ensure that the value of the donation can be determined based on reliable market prices.
• This bill simplifies the process around contributions of digital assets and provides parity between digital assets and other financial instruments.

Read bill text here.

H.R. 9176 - Providing Analogous Rules for Digital Assets ("PAR") Act (Rep. David Kustoff)
Promotes parity by extending long-standing tax benefits available for traditional financial assets to digital assets.

• Under current law, digital assets are often not clearly eligible for long-standing tax benefits available to traditional assets.
• This bill would allow digital assets to qualify for two existing safe harbors in the tax code: one which allows foreign persons to more easily invest in U.S. digital asset markets, and one which allows taxpayers to lend their digital assets without triggering a taxable event.
• This bill would also allow digital asset dealers and traders to use mark-to-market accounting, which is available for dealers and traders of similar financial assets.

Read bill text here.

H.R. 9174 - Digital Assets Voluntary Disclosure Program Act (Rep. Aaron Bean)
Establishes a one-time, voluntary disclosure program to promote tax compliance.

• Some digital asset owners have underpaid tax due to uncertainty and high compliance costs but are afraid to come forward and report their mistakes.
• This bill directs the Treasury to provide a voluntary disclosure program for taxpayers who failed to comply with tax law related to digital assets to come back into compliance, providing reduced penalties and a clean slate.
• This program will help prevent burdensome audits and promote voluntary compliance.

Read bill text here.

H.R. 9172 - Applying Existing Tax Anti-Abuse Rules to Digital Assets Act (Rep. Jodey Arrington)
Applies anti-abuse rules currently applicable to traditional financial assets to digital assets.

• Digital assets are not covered by some anti-abuse rules, like the "wash sale" or "constructive sale" rules, that apply to similar traditional financial assets.
• To close these loopholes, this bill updates the scope of these anti-abuse rules to ensure that they apply to digital assets on the same terms.
• This bill ensures that digital assets are not treated better than similar financial assets by applying the same longstanding anti-abuse rules.

Read bill text here.

Discussion Draft - End Digital Assets Tax Shelter Act
Democratic legislation that closes a tax loophole allowing U.S. residents to avoid tax on digital assets.

• Some U.S. citizens evade tax on digital assets based on an improper interpretation of rules for determining Puerto Rican source income and the IRS has struggled to effectively prevent this abuse.
• The bill will create a bright line rule that clearly disallows this abuse, making enforcement easier without impacting long-term Puerto Rican residents.
• This bill provides clarity for taxpayers and prevents these abusive transactions.

Read discussion draft text here.

Amendment to H.R. 9713 and H.R. 9175 (Rep. Steven Horsford)

Democratic legislation that addresses issues regarding mining and staking rewards and digital asset donations to charitable deductions

• Limits deferral on mining and staking election to five years.
• Limits charitable deductions for donations of digital assets that are not widely traded to the amount that the charity receives when selling the digital asset.

Read discussion draft text here.