In a move indicative of the increasingly important role digital assets play in the American economy, the United States Senate Finance Committee has reached out to the digital asset community to provide insights on taxing these evolving financial instruments. In an open letter published on July 11, 2023, the committee, under the leadership of Chair Ron Wyden and ranking member Mike Crapo, offered a unique opportunity for those involved in the digital asset industry to shape the taxation policies that will apply to their operations.
The Internal Revenue Code of 1986 currently does not offer a straightforward classification for digital assets, a quandary the senators are keen to resolve with the input of those at the heart of the industry. The letter posed a series of questions, grouped into nine categories, aiming to tackle the complexities of digital asset taxation head-on.
The senators highlighted in their statement, “In recent months, the Committee on Finance initiated a bipartisan effort to identify key questions that lie at the intersection of digital assets and tax law.” The subject areas include fair value (mark-to-market) accounting, the trading safe harbor, digital asset loans, wash sales, constructive sales, income from staking and mining, “nonfunctional currency”, reporting by foreign firms, and valuation and substantiation on an exchange. These questions often refer directly to specific sections of the tax code, underscoring the intricate nature of the task at hand.
The Internal Revenue Service (IRS) has, until now, focused primarily on curbing criminal activities associated with digital assets. Earlier this year, the IRS announced it had seized a staggering $10 billion in crypto assets through law enforcement efforts. However, it appears that the organization’s attention is pivoting towards taxation, a move signaled by its recent summons to crypto exchange Kraken, demanding user information on all transactions exceeding $20,000. This court-ordered demand by the District Court for the Northern District of California came into effect on June 30.
The Senate Finance Committee’s open letter will be accepting responses until September 8, providing the digital asset community with a two-month window to offer their input.
Ultimately, we believe, people should not be taxed for holding Bitcoin or crypto in the same way they are not taxed for simply holding the US dollar.
This initiative marks a watershed moment in the history of digital asset regulation, signaling a growing willingness on the part of the government to work alongside industry insiders to navigate the emerging challenges of the digital asset landscape. The letter presents a rare occasion for the cryptocurrency community to contribute directly to the shaping of legislation and regulatory practices that will guide the future of the industry, and indeed, the future of money itself.
You can send a response to the committee via email to: responses@finance.senate.gov
