The House Ways and Means Committee is set to hold a hearing at 2 p.m. ET Tuesday afternoon to debate several cryptocurrency tax bills amid growing questions over how tax rules should apply to digital assets and whether the measures can attract bipartisan support. The hearing addresses proposals ranging from creating caps on taxable asset thresholds to clarifying how taxes apply to staking and mining activities. The discussion follows Senate lawmakers' efforts to advance the Clarity Act and last year's enactment of a federal stablecoin bill, with regulators now working to implement its provisions.
Alison Mangiero, senior director of the staking coalition and industry affairs at the Crypto Council for Innovation, called tax policy the "third leg of the stool." "You can have stablecoin policy, you can have the Clarity Act pass, but without tax policy that recognizes digital assets as kind of an essential pillar, then the other two fall apart," Mangiero said in an interview with The Block.
Republican Lawmakers Introduce Seven Crypto Tax Bills
Since last week, seven crypto tax bills have been introduced by Republican lawmakers in the tax committee. One bill sets tax limits on smaller crypto transactions, another defers taxation for mining and staking until the assets are sold, and a separate bill extends wash sale rules to cryptocurrencies.
"The idea across the board is parity and trying to apply long-standing tax rules to this new asset class that is used in other asset classes," Mangiero said. There is also a bill focused on charitable donations, which would apply the same rules to digital assets as it does for other assets, such as stocks, Mangiero said.
The crypto industry has been pushing for staking rewards to be taxed when they are sold, not when they are created. One of the new bills creates a sort of elective process where people can choose to either pay taxes at the time of sale or at the time of receipt, and does not have a time limit, Mangiero said.
Democratic Rep. Horsford Files Amendments With Five-Year Time Limit
This week, Democratic Rep. Steven Horsford, who has been working on crypto tax legislation, brought forth an amendment that would set a time limit of up to five years. Horsford also filed an amendment on charitable donations. Both are likely to be discussed during the hearing.
According to Punchbowl News, Horsford has said he won't support the tax bills until his Republican counterparts make changes, voicing concerns around validation rewards and charitable giving, which he is working to solve ahead of Tuesday's hearing.
Coin Center Raises Concerns Over Wash Sale Rule Application
Ahead of the hearing, concerns around applying wash sale rules to crypto have come up --- an IRS rule that prevents people from claiming a tax deduction if they see an asset at a loss and then buy an identical investment within a certain time. Coin Center Communications Director Neeraj Agrawal called them "unworkable."
"Congress wants to extend wash-sale rules to crypto," Agrawal said in a post on X. "Doing so would make everyday crypto use, DeFi, and multi-wallet tracking nearly unworkable."
In prepared testimony for Tuesday's hearing, Coin Center Director of Policy Jason Somensatto said applying wash sale rules would "significantly increase compliance burdens while providing limited tax-administration benefits in the context of crypto networks."
Overall, Somensatto, who will testify during the hearing, said that current tax rules focus on how intermediaries work and how they can report and track users, which doesn't apply to crypto. "What may feel to a user like sending a simple electronic payment, using an app on their phone, or even playing a video game and receiving a reward can trigger tax consequences that require substantial recordkeeping and analysis," Somensatto said in his testimony. "The result is a compliance burden that is often out of proportion to the amount of tax at stake and what we would expect of individual taxpayers in similar scenarios."
American Bankers Association Criticizes Proposed Crypto Tax Advantages
Bank groups like the American Bankers Association also voiced their own concerns on Tuesday. In a post, ABA Senior Vice President for Fiscal Policy, Joey Connor, criticized the bills giving cryptocurrencies a "significant advantage" over other assets, citing the bills' treatment of staking, mining, and yields.
"At its core, the question is simple," Connor said. "If two investments generate similar returns, should one be taxed annually while the other is taxed only when the investor decides? Departing from the key principle of tax parity would not clarify the rules. It would tilt the playing field across the financial system with significant implications."
Tax Experts Scheduled to Testify at Hearing
Tax experts, including Coinbase Vice President of Tax Lawrence Zlatkin, Fidelity Investments Vice President and Senior Tax Counsel Sarah Reilly, Coin Center Director of Policy Jason Somensatto, and Deputy Director of the Tax Law Center at NYU Law Mike Kaercher, will testify at Tuesday's hearing.
The hearing could forecast Democratic support and messaging, sources told The Block. The bills could be included in a third reconciliation bill --- legislation that needs a simple majority to pass, with certain rules around what is included. That may not pass this year, so Democratic support for the tax bills is important if Democrats take control of the House next year, a crypto industry source said. Midterm elections are in November.
FAQ
What crypto tax bills will the House Ways and Means Committee debate on Tuesday?
The committee will debate seven crypto tax bills introduced by Republican lawmakers since last week. The bills cover tax limits on smaller crypto transactions, deferral of taxation for mining and staking until assets are sold, extension of wash sale rules to cryptocurrencies, and charitable donation rules for digital assets.
Why did Democratic Rep. Steven Horsford file amendments to the crypto tax bills?
Democratic Rep. Steven Horsford filed an amendment that would set a time limit of up to five years on staking tax deferral, along with an amendment on charitable donations. According to Punchbowl News, Horsford has said he won't support the tax bills until his Republican counterparts make changes, voicing concerns around validation rewards and charitable giving.
