Ways and Means weighs crypto tax reform

Tax Hot Topics

The House Ways and Means Committee held a hearing on June 9 focused on a bloc of six recently introduced bills that would reform the tax treatment of digital assets like cryptocurrencies and stablecoins in the U.S.

The bills are the latest in a yearslong string of legislative proposals aimed at overhauling how assets like bitcoin and ether are taxed, including a bipartisan effort by two committee members, Reps. Max Miller, R-Ohio, and Rep. Steven Horsford, D-Nev., put forward earlier this year. But this new wave of bills includes buy-in from the chair and Republican majority of the Ways and Means Committee, the first time the leadership of a taxwriting committee has put forward its own cryptocurrency proposals.

The bills are:

• H.R. 9172 (PDF - 82.81KB), the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act, introduced by Rep. Jodey Arrington, R-Texas. The bill would apply wash and constructive sale rules to digital assets. The wash sale rule prevents traders from claiming a deduction for a security loss if they buy the same security within 30 days. The constructive sale rule applies to situations where an investment with unrealized gains is hedged so that the risk of loss is essentially eliminated.
  Estimates may differ now due to changes in cryptocurrency markets, but the Treasury Department’s 2024 “green book” of revenue proposals estimated that applying the wash sale rule to digital assets could raise $23.5 billion for the federal government over 10 years.
• H.R. 9173 (PDF - 65.20KB), the Charitable Deductions for Digital Asset Donations Act, introduced by Rep. Mike Kelly, R-Pa. The bill would exempt digital asset donations from appraisal requirements, so long as the donated property meets criteria ensuring the value of the donation can be determined based on reliable market prices.
• H.R. 9174 (PDF - 61.62KB), the Digital Assets Voluntary Disclosure Program Act, introduced by Rep. Aaron Bean, R-Fla. The bill would direct Treasury to create a voluntary disclosure program, with reduced penalties, for digital asset investors who may have underpaid taxes on their investments.
• H.R. 9175 (PDF - 98.52KB), the Tax Clarity for Mining and Staking Act, introduced by Rep. Mike Casey, R-Ohio. The bill would treat cryptocurrency mining and staking rewards as ordinary income, but in a manner similar to self-created property, which can receive more favorable tax treatment upon sale.
• H.R. 9176 (PDF - 85.68KB), the Providing Analogous Rules for Digital Assets (PAR) Act, introduced by Rep. David Kustoff, R-Tenn. The bill would allow digital asset dealers and traders to use mark-to-market accounting, similar to securities dealers and traders, allowing them to apply fair value to digital assets instead of the original purchase cost. The bill would also open the existing securities and commodities trading safe harbor for foreign individuals and corporations transacting in digital assets and allow digital asset owners to lend their assets without triggering a taxable event.
• H.R. 9178 (PDF - 121.51KB), the Less Tax Paperwork for Digital Asset Owners Act, introduced by Rep. Rudy Yakym, R-Ind. The bill would create a new method of accounting for taxes on digital assets, adjust digital asset broker reporting requirements, and create special reporting exceptions for digital asset network fees.

Democrats also offered their own proposals, including amendments by Horsford to H.R. 9173 and H.R. 9715 that would limit elected deferrals on mining and staking rewards to a five-year window and limit charitable deductions to the amount a nonprofit receives upon sale of a digital asset. Most significantly, committee Democrats put forward a discussion draft aimed at increasing federal tax collection on digital assets sold by U.S. citizens in Puerto Rico, as the territory has become a hotbed for cryptocurrency investors and is subject to a more limited federal capital gains rate for non-U.S. citizens.