U.S. Rep. Jodey Arrington (R-TX) introduced legislation last week that seeks to close tax loopholes in the digital asset market.
The Applying Existing Tax Anti-Abuse Rules to Digital Assets Act (H.R. 9172) seeks to ensure that investors play by the same rules regardless of whether they hold traditional financial assets or digital assets.
The bill applies existing anti-abuse rules to digital assets that already govern comparable investment assets. It ends unequal treatment while supporting continued innovation and growth in the digital asset economy.
“America should lead the world in digital asset innovation, but that innovation shouldn’t come with preferential treatment in the tax code,” Arrington, House budget chairman, said. “Today, digital assets are exempt from anti-abuse rules that apply to other investment assets, creating loopholes that undermine parity and equal treatment under the law. My Applying Existing Tax Anti-Abuse Rules to Digital Assets Act closes these loopholes by applying the same commonsense safeguards that already apply to similar traditional financial assets, providing greater certainty for taxpayers and supporting the continued growth of America’s digital asset economy.”
The current law exempts many digital assets from anti-abuse tax rules that apply to traditional investment assets. This bill would apply existing wash sale and constructive sale rules to digital assets, ensuring comparable assets are treated consistently under the tax code.
The wash sale rule prevents investors from generating artificial tax losses while maintaining substantially the same investment position. U.S. dollar-backed stablecoins and digital assets acquired through staking, mining, and other validation activities are exempt from the wash sale rule.
The constructive sale rule prevents investors from locking in gains while indefinitely deferring capital gains taxes.
“Bad actors should not be able to game the system and evade longstanding anti-abuse rules by moving from traditional financial assets to digital assets,” Ways and Means Committee Chairman Rep. Jason Smith (R-MO) said. “Congress established anti-abuse rules like the wash sale and constructive sale provisions to close loopholes and protect the integrity of our tax system. However, because those rules were created before digital assets existed, a regulatory gap has emerged that some individuals have exploited.”
The bill does not create new taxes on digital assets — it applies existing anti-abuse rules that already govern comparable investment assets.