RB: This is DC Dynamics, a podcast about what to expect in Washington, with a look to the past as our guide. I’m Ray Beeman and I lead our amazing team here at Washington Council EY. Today we are going to talk about an issue that was barely on our radar just a few years ago but is now front and center these days, and that is cryptocurrency and digital assets. Congress has been considering crypto and digital asset policy generally, and the issue has gained increasing interest among members of the House and Senate tax-writing committees, given the lack of specific tax rules and the growth in these products and the marketplace. And the profile has only been raised under the current administration. President Trump has said he wants to make the United States the crypto capital of the world.
For more insight, I’m joined by Bill Rys, one of the newer members of our team who is no stranger to Washington tax circles and has viewed policy issues from many angles – having worked for a Ways and Means member, the Treasury Department, a global bank and now EY.
So, Bill, this is kind of how bills should be written on Capitol Hill – there’s a hearing to identify the pressing issues, some members declare that they want to lead on the issue, proposals come out … you get the idea.
BR: Yes, that is how it is shaping up. There were hearings at both the Ways & Means and Senate Finance Committees in the last year. There is some consensus that rules on the tax treatment of cryptocurrency and digital assets are needed. During the Ways & Means hearing, members from both parties – Republican Max Miller from Ohio and Democrat Steven Horsford from Nevada – said they were interested in taking the lead as the committee determines how crypto fits into the tax system. And they released a draft bill with some placeholders just before Christmas.
RB: So, at the heart of the debate over tax treatment is really the question of, ‘How should digital assets and crypto be treated under current tax rules and where are there differences in these products that need to be recognized in the tax code?’ Obviously, there are different tax rules hinging on that question.
BR: Yes, there were really two main issues that were discussed at the W&M hearing.
- Digital assets are treated as property, which means that any transfer or exchange can trigger taxable income. The industry is pushing for a de minimis rule to exempt transactions under a threshold from taxation and reporting requirements. Senator Cynthia Lummis – who is from Wyoming, which has a big crypto presence – was the first member to come out with a crypto tax bill, a main feature of which is a de minimis rule to set a $300 transaction threshold and $5,000 yearly total cap.
The Miller-Horsford bill has a $200 de minimis threshold, this is consistent with the foreign currency transaction exception under section 988, to eliminate low-value gain recognition arising from routine consumer payment use of regulated payment stablecoins. It would not establish a safe harbor for the trading of other cryptocurrencies.
Because every digital asset transaction is a taxable event, industry advocates say even buying a cup of coffee with crypto requires calculation and reporting of gain or loss, and that discourages the use of digital assets as a medium of exchange.
- The other main policy target discussed at the hearing is staking, which is how transactions are validated on the blockchain and how rewards are issued. Once cryptocurrency is placed on the blockchain, a reward that comes with that is currently treated as ordinary income at the time staking or mining occurs. This is one area where the IRS has taken a position, but the industry wants staking rewards to be treated like all other created property – taxed at the time of sale, not at the time of creation. There are proposals to treat the rewards as a capital asset where you would tax them upon disposition, thereby deferring the tax from the time of creation to the time of sale. That is the approach taken in the Lummis bill. And there were many analogies made at the hearing, including that this treatment is akin to taxing a farmer for their crops before they sell them. The Miller-Horsford bill includes a placeholder for an eventual provision intended to reflect a compromise between immediate taxation upon dominion and control and full deferral until disposition.
RB: And the bills shaping up in the House and Senate cover roughly the same universe of topics?
BR: Right. The Miller-Horsford draft tracks the same issue set as the Lummis bill: de minimis and staking, as we discussed, plus wash sale rules, mark-to-market elections, charitable contributions, lending exemptions for short-term lending arrangements and retirement plans.
In some cases, the drafts try to fit crypto and digital assets into the existing tax rules. But in a case like the proposal around wash sale rules ‒ as it currently is being considered ‒ digital assets don’t fit neatly into the current definitions and further clarifications are expected to ensure the rules don’t pull in unintended transactions.
RB: And, of course, we remember the House-passed Build Back Better Act (BBBA) way back in 2021, which included proposals to apply wash sale and constructive sale rules to digital assets. Those proposals ultimately were not included in what became the Inflation Reduction Act, but they did put a marker down for some proposals.
BR: Right. That does seem like a long time ago and these issues are still being kicked around. The draft Miller-Horsford bill includes a wash sale provision to prohibit a deduction if, within 30 days of a sale or disposition at a loss, there is the acquisition of substantially similar identical assets or a contract to do so. The Lummis bill also includes a 30-day wash sale rule that applies to digital assets. Without a special rule, cryptocurrency, which is treated like property, can be sold at a loss for a tax deduction followed by a purchase of the same asset.
RB: Now, fast forward a couple months, and there was a little less unanimity during the Senate Finance Committee hearing.
BR: Yes, that hearing aired some differences of opinion on some of the main tax issues related to cryptocurrency, including whether a de minimis rule to exempt small-dollar transactions is appropriate or creates the potential for abuse, and whether a new subset of tax rules is required for crypto or simply modifying current rules is sufficient. Senator Elizabeth Warren (D-MA) was a main detractor of carving out special rules for the industry and argued for more similar treatment for risks and other factors across financial products. At the hearing, Senator Steve Daines of Montana and Senator Marsha Blackburn from Tennessee added their names to the list of members interested in working on the issue, along with Senator Lummis, who is not on the Finance Committee, but has been a leader on these issues in the Senate Banking Committee.
RB: So, what is the latest?
BR: There was some hope about getting a crypto tax bill done before the end of 2025. But a number of things slowed that down – among them, the shutdown, addressing nontax-related digital asset issues and that Congress is still working to fully understand these issues.
Rep. Miller is working to generate Democratic support and wants to have a final version of his bill enacted by the 2026 August congressional recess. And Senator Daines said he was hoping to have made some progress on his legislative efforts early in the new year.
Given the bipartisan work on these issues that started in 2025 and the continued focus on both tax and regulatory frameworks – plus the administration’s continued interest ‒ 2026 could be a big year for crypto and digital asset policy. There have also been some comments from Treasury that they could issue guidance on staking. In November, Treasury issued guidance describing a safe harbor for investment trusts and grantor trusts to stake their digital assets without jeopardizing their tax status.
RB: And it sounds like cryptocurrency legislation that goes beyond tax is also being punted into 2026.
BR: Yes, first the president signed the GENIUS Act into law in July of 2025. This is the first ever law that focuses on digital assets and sets rules around payment stablecoin. Further regulations clarifying and implementing the GENIUS Act are expected next year.
The House also passed a bill, the CLARITY Act, to provide a framework for digital commodities and securities. In the Senate, both the Senate Banking Committee and Agriculture Committees have jurisdiction, so it takes a little extra effort from a procedural standpoint. However, with a number of outstanding issues to be resolved, a Banking Committee markup was postponed last year and recently was postponed again.
In the Senate, the CLARITY Act will be considered by both the Banking and Agriculture Committees as the two committees split jurisdiction over the SEC and the CFTC. A lot of work has gone into the bill with an attempt to build bipartisan support. But Senate Banking canceled their recently scheduled mark-up to continue to work through outstanding issues.
The major issue is whether rewards can be paid on stablecoins. Banks raised concerns that the rewards are the same interest paid on a banking account and that should not be allowed outside the regulated banking space. The most recent draft of the bill provided some compromise language, but the issue is still not resolved.
Given the interest in the issues in Congress and the administration, it seems likely that this bill moves forward this year. It will just take a little more work to resolve these issues.
But there is a lot of interest and a lot of work getting done to be able to get this done in 2026. There are no specific tax provisions in the CLARITY Act, but it provides a framework on whether crypto is a security or a commodity and that may help guide tax treatment.
RB: So, at a high level, these proposals would establish digital assets as a separate asset class and apply certain rules applicable to securities and commodities.
BR: This is really building out that framework.
As the White House report on digital assets released last summer noted, the current tax guidance on digital assets in Notice 2014-21 characterizes virtual currency for federal income tax purposes as property, not currency. But the guidance does not address whether a digital asset is considered a security or commodity for federal income tax purposes.
There has been the issue of equivalent treatment under law among assets that look like traditional instruments and the instruments themselves, but this is providing the beginnings of a framework. The White House wants legislation that treats digital assets as a new class of assets subject to modified versions of tax rules applicable to securities or commodities for tax purposes.
There is always a learning curve in trying to get Congress up to speed on issues that can be very challenging, and this is definitely one of those issues.
RB: You mentioned retirement plans. That seems to have become an issue all on its own. In early August, a presidential Executive Order called for a reexamination of making available to retirement plan participants an asset allocation fund that includes investments in alternative assets, including investment vehicles that are investing in digital assets. This followed the action taken by the Labor Department last May to rescind the prior administration’s 2022 guidance directing plan fiduciaries to exercise so-called “extreme care” before adding cryptocurrency to investment menus.
Thanks Bill. Well, it seems like we now know the universe of tax changes on the table for digital assets. There is a lot of enthusiasm among members and industry reps, and we will have to stay tuned to how the details are filled in.
Really appreciate you being on today, Bill, and look forward to having you back to update us on these developments.
With that, I’m Ray Beeman and this has been DC Dynamics.
