Tax legislation for digital assets: What’s the conversation in Congress?

Editor: Robert Venables, CPA, J.D., LL.M.

Since the first piece of digital asset tax guidance was issued by the IRS through Notice 2014-21, in which it determined that digital assets should be considered property for U.S. income tax purposes, digital asset users have been requesting and patiently waiting for comprehensive tax legislation. Absent additional guidance to clarify which long-established tax principles for property transactions should apply, such as those relevant to commodities or securities, many taxpayers have been left to follow an approach based on their own level of risk tolerance. In March 2026, the SEC and Commodity Futures Trading Commission (CFTC) provided some clarity by issuing a joint interpretation on when a digital asset should be considered a commodity or a security.

As outlined in this item, some members of Congress have also been seeking to address the long–standing uncertainty and create stability for digital asset users. Although the March 2026 SEC/CFTC joint interpretation informs how certain digital assets are viewed for securities–law purposes, the congressional proposals would specify tax treatment for digital assets in particular Internal Revenue Code (IRC) sections.

This item compares two recent legislative proposals: (1) a bill (S. 2207) from Sen. Cynthia Lummis, R–Wyo., titled “A bill to amend the Internal Revenue Code of 1986 to reform the treatment of digital assets” (hereinafter, the Lummis bill) (introduced in June 2025), and (2) a bill (H.R. 8899) sponsored by Rep. Max Miller, R–Ohio; Rep. Steven Horsford, D–Nev.; and Rep. Suzan DelBene, D–Wash., titled “Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields Act” (hereinafter, PARITY) (introduced in May 2026). Although both bills share certain themes, they differ in key areas, raising questions about where future legislation might be heading. Following is a comparison of their key tax provisions.

Exclusion for de minimis gain from sale or exchange of digital assets

This type of provision recognizes the impracticality of tracking small personal transactions using digital assets (such as purchasing a cup of coffee). The requirement to track such small transactions creates a compliance burden for everyday users. The Lummis bill and PARITY handle this impracticality by creating an exclusion from tracking gain or loss from the sale of digital assets under specific circumstances.

Lummis bill: The bill would create a new Sec. 139J, allowing a $300 de minimis exclusion per digital asset transaction for gains or losses, except when the sale involves cash or cash equivalents (also known as fiat), business property, or income–producing property. The inflation–adjusted annual total cap is $5,000.

PARITY: The bill would create a new Sec. 1046 providing that no gain or loss shall be recognized on the sale of a regulated payment stablecoin (as defined by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, P.L. 119–27) unless the taxpayer’s basis in such stablecoin is less than 99% of the redemption value of such stablecoin. This provision does not include a de minimis exclusion for any other type of digital asset.

Tax treatment of digital asset lending agreements

Sec. 1058 provides nonrecognition treatment for lending activities involving securities if certain conditions are satisfied. Both the Lummis bill and PARITY expand Sec. 1058 to afford digital assets the equivalent tax treatment as securities lending, allowing digital asset users to lend their assets without incurring taxable gains or losses.

Lummis bill: The bill would expand Sec. 1058 to include “actively traded digital assets,” defined as fungible digital assets for which quotations are readily available on a digital asset exchange.

PARITY: The bill would expand Sec. 1058 to include only “eligible digital assets,” defined as fungible digital assets:

• For which a market price is readily ascertainable based on publicly available quotations on a digital asset exchange;
• That do not represent or confer any ownership interest; equity interest; debt obligation; or other financial or property right in any entity, asset, commodity, or enterprise; and
• That are designed and function primarily as a medium of exchange, store of value, or unit of account and are recorded and transferred through distributed ledger or blockchain technology.

Loss from wash sales of digital assets

The wash–sale rule in Sec. 1091 prevents investors from harvesting losses by selling shares of stock or securities to claim a loss and then purchasing substantially identical stocks or securities within the 30 days before or after the sale (a 61–day period). Both the Lummis and PARITY bills expand the wash–sale rule to prevent loss harvesting from digital assets.

Lummis bill: The bill would expand Sec. 1091 to apply to dispositions and repurchases of any digital asset (excluding payment stablecoins, which should generally not result in significant loss recognition) that is not held by a dealer in their ordinary course of business.

PARITY: The bill would expand Sec. 1091 to apply to dispositions and repurchases of any digital asset. Unlike in the Lummis bill, there is no exclusion for payment stablecoins, due to the proposed elimination of gain or loss recognition on payment stablecoins addressed in new Sec. 1046 outlined above. A determination of whether a digital asset is “substantially identical” to any other digital asset would be made on the basis of the economic exposure of the digital asset and not the fact that it may trade on a different exchange or different blockchain.

Mark-to-market election

The mark–to–market election under Sec. 475 allows dealers in commodities and traders in securities or commodities to elect to use the mark–to–market method of accounting, reporting unrealized gains and losses as ordinary income at the end of every tax year.

Lummis bill: The bill would create a new Sec. 475(g), allowing dealers and traders in digital assets to elect mark–to–market treatment, to be treated equally to traders in securities or commodities.

PARITY: In an almost identical provision, the bill would create a new Sec. 475(g), allowing dealers and traders in “actively traded digital assets” (to be defined by Treasury) to elect mark–to–market treatment, to be treated equally to traders in securities.

Constructive-sale rules

The constructive–sale rules in Sec. 1259 require a taxpayer to recognize gain as if they had sold an appreciated financial position if they enter certain hedging transactions with respect to the same or substantially identical property, including a short sale or an offsetting swap. These rules are designed to prevent taxpayers from locking in gains without actual disposition by entering offsetting transactions that eliminate substantially all the risk of loss and opportunity for gain.

Lummis bill: The bill is silent on this issue.

PARITY: The bill would expand the current Sec. 1259 definition of “appreciated financial position” to include digital assets.

Digital asset mining and staking

Under current IRS guidance (see Notice 2014–21, Q–8; Rev. Rul. 2023–14), rewards earned from mining and staking result in ordinary income recognition at the time the recipient has dominion and control over the rewards. Any subsequent disposition results in capital gain or loss if those digital assets are held for investment. This is a point of contention for some digital asset users who may view the activity of mining or staking as the creation of new property, which is generally excluded from income recognition until the new property is sold or otherwise disposed of. While both legislative drafts address this issue, their methods are significantly different.

Lummis bill: The bill would create a new Sec. 451(l), deferring income recognition for both mining and staking rewards until the rewards are sold or otherwise disposed of. At such time, the taxpayer would recognize ordinary income.

PARITY: The bill would create a new subchapter in the IRC, comprising new Secs. 1400W–1 through 1400W–3. Sec. 1400W–1 would codify existing guidance that the acquisition of any newly created digital asset results in the fair market value (FMV) of that digital asset being included in the taxpayer’s gross income as ordinary income for the tax year. Conversely, Sec. 1400W–2 would allow “specified taxpayers” to elect to defer ordinary income recognition for up to five years. “Specified transaction costs” incurred during a tax year with the election in effect are nondeductible and shall be chargeable to the capital account. “Specified transaction costs” include any amount incurred to (1) claim or withdraw such asset from a staking pool, validator, or protocol; (2) execute a smart function to receive such asset; or (3) transfer such asset to a wallet or account controlled by the taxpayer. In the case of any partnership or S corporation, the election must be made at the entity level. The term “specified taxpayer” means, with respect to the acquisition of any newly created digital asset that is issued in connection with the validation of digital asset transactions, a taxpayer who is the person who validated the digital asset transactions in connection with which such digital asset was issued.

Charitable contributions and qualified appraisals

The IRS clarified through Chief Counsel Advice 202302012 that digital asset donations for which a charitable contribution deduction of more than $5,000 is claimed require a qualified appraisal under Sec. 170(f)(11)(C) to qualify for a deduction. A taxpayer’s attempt to rely upon the FMV based on a digital asset exchange will result in noncompliance, and the deduction will be disallowed. The difficulty in obtaining qualified appraisals has discouraged the giving of digital assets. Both the Lummis bill and PARITY expand Sec. 170(f)(11)(A)(ii)(I) exemptions to the qualified–appraisal requirement to include contributions of “actively traded digital assets.”

Lummis bill:The bill would expand Sec. 170(f) exceptions to the qualified–appraisal rules to include actively traded digital assets.

PARITY: The bill would expand the Sec. 170(f) exceptions to the qualified–appraisal rules to include actively traded digital assets. Additionally, no deduction shall be allowed for contributions of digital assets that are not actively traded digital assets with a claimed value that exceeds $500 unless the taxpayer substantiates such contribution through a contemporaneous written acknowledgment of the contribution by the donee organization.

Digital asset trading safe harbor

Sec. 864(b) excludes from performance of personal services in a U.S. trade or business certain trading in securities or commodities on an organized exchange for one’s own account. This exclusion prevents many non–U.S. traders in private trading entities from being pulled into the U.S. tax system. Expanding this IRC section to include digital assets would put digital asset investment entities on an equal footing with traditional asset investment entities.

Lummis bill: The bill is silent on this issue, although earlier draft legislation cosponsored by Lummis did include this provision.

PARITY: The bill would expand Sec. 864(b) to exclude trading in digital assets through a broker or a digital asset exchange from being considered in a U.S. trade or business. This exclusion shall apply only to digital assets of a kind customarily dealt in on a digital asset exchange.

Sources of income

Identifying the source of staking rewards is a major issue for digital asset users. Whether these rewards are considered U.S. or non–U.S. affects withholding and reporting obligations for non–U.S. persons. Existing sourcing rules may not fit staking rewards well, especially for passive investors, as validators can operate globally, and the network protocol typically lacks information on tax residency.

Lummis bill:The bill would create new Sec. 863(f), providing that the source of any income related to the validation of digital asset transactions shall be determined by reference to the residence of the recipient at the time of receipt.

PARITY: The bill is silent on this issue.

Passive staking and exchange-traded products

In November 2025, the IRS issued Rev. Proc. 2025–31, providing a safe harbor for investment trusts that qualify as grantor trusts to stake digital assets without jeopardizing their tax status, provided certain requirements are met. There nonetheless remain questions regarding the reporting and distribution of the staking rewards. Additionally, the guidance did not address whether passive staking could constitute a trade or business.

Lummis bill: The bill is silent on this issue.

PARITY: Passive staking shall not constitute a trade or business. The bill would add Sec. 7701(p), clarifying that passive staking shall not constitute a trade or business for the purposes of Sec. 512 (defining unrelated business taxable income for not–for–profit organizations) and Sec. 864 (trading safe harbor outlined above). Additionally, any power held by a trustee to stake or unstake digital assets, whether directly or through delegation to another party, and to perform any related acts to exercise such power to stake, including the retention of staking rewards, shall not be treated as a power under such trust agreement to vary the investment of the certificate holders of such trust and shall not otherwise disqualify an entity from characterization as an investment trust that is not classified as a business entity.

Monitoring proposed legislation

While Congress may face a lengthy process to enact comprehensive tax legislation, individuals involved in digital asset transactions should consider how these bills may influence their own tax planning strategies. Emerging patterns may become more evident through multiple layers of bipartisan draft proposals expanding or creating new IRC sections.

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Editor

Robert Venables, CPA, J.D., LL.M., is a tax partner with Cohen & Co. Ltd. in Fairlawn, Ohio.

For additional information about these items, contact Venables at rvenables@cohencpa.com.

Unless otherwise noted, contributors are members of or associated with Cohen & Co. Ltd.