In June, the House Committee on Ways and Means held a hearing on a collection of bills that would create a new policy framework for taxing digital assets. The hearing highlighted broad areas of bipartisan agreement with some partisan differences and some skepticism that lawmakers fully understand the complexities involved. House taxwriters examined and debated the following legislative proposals:

H.R. 9178, the Less Tax Paperwork for Digital Asset Owners Act

Introduced by Representative Rudy Yakym (R-IN), H.R. 9178 would ease compliance for day-to-day cryptocurrency transactions with a de minimis exemption from capital gains taxation for blockchain network fees under $10. It would provide tax parity to regulated, dollar-backed stablecoins, removing the requirement to report minor fluctuations when used for transactions. The bill would also allow retail taxpayers to elect a simplified annual accounting method for digital assets.

The reforms in H.R. 9178 have bipartisan support in the Committee on Ways and Means, including from Ranking Member Richard Neal (D-MA).

H.R. 9175, the Tax Clarity for Mining and Staking Act

Introduced by Representative Mike Carey (R-OH), H.R. 9175 would defer tax on newly minted or staked tokens by allowing creators to treat them as self-created property until the assets are sold or exchanged. It also sets up regulatory safe harbors for institutional grantor trusts to participate in staking.

Clear partisan differences have emerged over this bill. Many Democrats on the Committee on Ways and Means criticized these proposed changes as essentially allowing unlimited deferral. Representative Steven Horsford (D-NV), a key bipartisan leader on digital taxation, supports a five-year deferral limit for these assets.

H.R. 9173, the Charitable Deductions for Digital Asset Donations Act

Introduced by Representative Mike Kelly (R-PA), H.R. 9173 would eliminate a required independent third-party appraisal when donating cryptocurrency valued above $5,000 to charity. The Secretary of the Treasury would be empowered to adjust eligibility criteria to prevent donors from over-inflating the value of illiquid tokens.

Representative Horsford sought to modify the bill with an amendment to limit the deduction for such charitable contributions "the claimed value of which exceeds $500 to the gross proceeds the donee organization received from the sale of such digital assets in an arm's length transaction," the Joint Committee on Taxation (JCT) explains. In other words, for digital asset donations exceeding $500, no deduction would be available unless the charity sold the digital asset in an arm's length transaction to an unrelated party. 

H.R. 9176, the Providing Analogous Rules for Digital Assets Act

Introduced by Representative David Kustoff (R-TN), H.R. 9176 seeks tax rule parity with traditional financial (TradFi) tax treatment. It would allow professional dealers and traders of digital assets to use a standard section 475 mark-to-market accounting framework. It expands the section 1058 securities lending safe harbor so that routine crypto lending agreements are treated as non-taxable loans, rather than taxable sales. It would also expand trading safe harbors to foreign investors.

Some Democrats have been critical of these changes, arguing that the volatile nature of digital assets should require more restrictions.

H.R. 9174, the Digital Assets Voluntary Disclosure Program Act

Introduced by Representative Aaron Bean (R-FL), H.R. 9174 would instruct Treasury to set up a formal process for taxpayers to report and correct prior non-compliant cryptocurrency transactions, while also repaying outstanding tax liabilities with interest and a streamlined post-disclosure audit. The proposed legislation would have different penalty structures depending on the amount of the aggregate deficiency and whether the taxpayer certified under penalties of perjury that their violations were not willful or fraudulent. 

Democrats have largely refrained from direct criticism of H.R. 9174 but have not fully embraced the proposal. It may be the subject of further bipartisan negotiation.

H.R. 9172, the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act

Introduced by Representative Jodey Arrington (R-TX), H.R. 9172 would apply the section 1091 wash-sale rules to digital assets disallowing investors from claiming a tax loss if repurchased within 30 days. It would apply the section 1259 constructive sale rules to digital assets, stopping high-net-worth individuals from using certain derivative or short strategies to sidestep capital gains taxes. Also included are exemptions for qualified U.S. dollar-backed stablecoins and tokens earned via mining or staking. The bill would also create a standard for tokenized or wrapped assets, ensuring that multi-chain variants are legally treated as "substantially identical property."

These anti-abuse provisions have bipartisan support.

End Digital Assets Tax Shelters Act

This draft bill assembled by Democrats on the Committee on Ways and Means would guard against U.S. taxpayers evading capital gains taxes by moving offshore just ahead of liquidating large cryptocurrency holdings. It would establish a 10-year lookback rule that forces gains from digital asset sales to be treated as U.S.-sourced income with a safe harbor waiver if taxpayers can document that such assets have been previously taxed by a foreign nation at a rate of at least 10 percent.

Although not a priority for Republicans, they appear inclined to support the draft legislation as a means of attracting bipartisan support for the broader changes included in the previously discussed bills.

After last month's House hearing, the next step for tax legislation on digital assets would be markup. However, Chairman Jason Smith (R-MO) has not indicated that a formal markup is likely anytime soon. He has vowed that legislation on this topic cannot advance without bipartisan support. It may take several months to iron out policy differences before the committee takes further action. 

The Senate Committee on Finance has been laying the groundwork for bipartisan legislation. After soliciting issue-specific feedback from the public on taxing digital assets in 2023, the panel held its maiden hearing on the issue last October. Since then, Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) have reportedly been making progress on a legislative framework, if not an actual legislative proposal. Senator Steve Daines (R-MT), who has led efforts to update the federal tax regime for digital assets, recently told reporters that a Committee on Finance proposal is coming soon, possibly in the fall.

Outside of the committee, Senator Cynthia Lummis (R-WY) has jumped ahead with comprehensive legislation of her own. Her bill (S. 2207) covers wash sales, asset lending, de minimis transactions, asset mining and staking, charitable contributions, and a mark-to-market election for dealers and traders. The bill's three co-sponsors are all Republican members of the Committee on Finance.

While both chambers have made some progress, a bill signing is still far off. More action is possible after the midterm elections, when partisanship often yields to bipartisan practicality.

For more information, please contact:

Andy L. Howlett, ahowlett@milchev.com, 202-626-5821

Patrick J. Holten, pholten@milchev.com, 202-626-5877

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.