New legislation approved by the House Ways and Means Committee this week seeks to provide cryptocurrency and digital asset investors with greater tax certainty and fewer tax compliance burdens.
The Digital Asset Tax Certainty Act (H.R. 10357) changes the tax code for digital assets by reducing reporting requirements, clarifying the tax treatment of mining and staking, and creating parity with traditional financial assets.
Specifically, the bill would remove tax barriers to the use of digital assets as a medium of exchange. Current law requires separate reporting for every digital asset transaction, no matter how small or routine, making administration of the tax code inefficient for the IRS and less burdensome for filers. Last year, the IRS received hundreds of millions of 1099-DA forms – many of which were for transactions less than $10.
The bill also seeks to provide parity between digital assets and comparable traditional financial assets by making digital assets eligible for two existing tax code safe harbors. Further, it would allow digital asset dealers and traders to use mark-to-market accounting. In addition, it would make charitable donations of many common digital assets eligible for the same tax rules as publicly traded securities.
Also, the bill would apply existing tax anti-abuse rules to digital assets – including the “wash sale” and “constructive sale” rules along with other anti-abuse rules that pertain to financial derivatives, U.S. territories, and foreign corporations.
And, as mentioned, it clarifies the tax treatment of mining and staking – the core processes that validate transactions on the blockchain and make the ecosystem work.
Finally, the bill would direct the Treasury Department to establish a voluntary disclosure program specifically focusing on digital assets, providing reduced penalties and a clean slate. This would seek to mitigate uncertainty, high compliance costs, and the large volume of tax forms.
Also, the Digital Asset Tax Certainty Act would change the current tax law to restore the ability of taxpayers to deduct financial losses incurred due to gambling.
“This legislation would be the first-ever federal law to address the substantive tax treatment of cryptocurrencies and other digital assets – affecting the one in four Americans that currently hold some form of cryptocurrency, more than 67 million people. This is a historic step that has tremendous economic and innovative potential for our nation,” Ways and Means Committee Chairman Rep. Jason Smith (R-MO) said.
The bill passed the committee by a vote of 8-5.
“Digital assets are an increasingly important part of our economy, and the Digital Asset Tax Certainty Act allows our tax code to keep pace with innovation,” Rep. Mike Kelly (R-PA), chairman of the Ways & Means Tax Subcommittee and cosponsor of the bill, said. “This legislation provides a clear roadmap for Americans who use digital assets, and it establishes rules of the road for taxation and enforcement without granting special treatment.”
The bill now advances to the full U.S. House of Representatives for consideration.