A bipartisan group of lawmakers has introduced sweeping legislation to establish a new tax framework for digital assets, aiming to close the wealth gap and provide long-sought clarity for consumers and investors.
Representative Max Miller (R-OH) introduced the Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (PARITY) Act (H.R. 8899), with Representatives Steven Horsford (D-NV), Suzan DelBene (D-WA), and Mike Carey (R-OH) as original cosponsors.
The bill aims to create clear and administrable standards for the taxation of digital assets, provide certainty to markets, and establish guardrails to prevent abuse. “As digital assets continue to grow and evolve, Washington cannot afford to stay stuck in the past,” said Horsford in a press release. “Right now, the lack of clear rules creates uncertainty for consumers, investors, businesses, and regulators while leaving the system game-able for wealthy and sophisticated players.”
New Framework for Stablecoins and Anti-Abuse Rules
A central provision of the bill is a new “deemed-basis rule” that would align the tax treatment of regulated, dollar-pegged payment stablecoins with that of actual cash. This change would eliminate the need for consumers to track and report small gains or losses on routine transactions. For the rule to apply, the stablecoin must be issued by an entity compliant with federal rules, and the taxpayer must have acquired it for a price within 1% of $1.00. This relief explicitly excludes professional dealers and traders.
The PARITY Act also seeks to apply anti-abuse provisions to digital assets that are already required for stocks and other securities. It extends the wash sale rules under IRC § 1091 to digital assets, closing what the bill’s sponsors call the “fake-loss loophole.” The legislation also extends the constructive sale rules under IRC § 1259 to prevent investors from using financial arrangements to lock in gains on an appreciated asset without technically triggering a taxable sale.
Additionally, the bill would permit professional digital asset dealers and active traders to make a mark-to-market election, aligning their tax treatment with existing rules for securities markets.
For foreign investors, the PARITY Act would create a tax safe harbor, ensuring that those trading on U.S. digital asset platforms are not inadvertently treated as conducting a U.S. trade or business. Sponsors say this provision would encourage trading on domestic exchanges, which they describe as safer and more transparent than foreign alternatives.
Tax Clarity for Staking, Lending, and Donations
To address what sponsors describe as a “phantom income” problem for miners and stakers, the bill provides a new election for when rewards are taxed. Taxpayers could choose the default option of paying ordinary income tax on rewards when received, or they could elect to defer the income for up to five years. If the deferral election is made, any disposition of the asset during that period would be treated as ordinary income or loss.
The legislation also expands established securities-lending tax principles under IRC § 1058 to cover qualifying digital asset loans, ensuring that lending a digital asset is not treated as a taxable sale.
A new two-track system is proposed for charitable contributions of digital assets. For large, liquid assets like Bitcoin or Ethereum with high trading volume, no appraisal would be required, treating them like publicly traded stocks. For smaller, illiquid, or speculative crypto, the deduction would be limited to the gross proceeds the charity actually receives upon selling the asset. This track requires a written acknowledgment from the charity detailing the sale.
The bill further clarifies the rules for institutional investors by addressing unrelated business taxable income, or UBTI. It codifies that passive staking by tax-exempt entities like university endowments and pension funds is not considered a trade or business, addressing a source of legal uncertainty.
Addressing Consumer Burdens and Future Rulemaking
While the bill does not create a broad de minimis exemption for small personal transactions, it directs the Treasury Department to study the issue in depth and report to Congress within one year. The study will analyze the compliance burdens on taxpayers and the technological requirements for the IRS to enforce such an exemption without creating new loopholes. The legislation includes a “Sense of Congress” that taxpayers should not be subjected to undue compliance burdens for low-value personal transactions.
The proposed legislation builds on existing frameworks, particularly for the treatment of regulated stablecoins, which would be defined by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. “By establishing a more balanced and predictable tax framework, this legislation is a first step in fostering innovation here at home while ensuring the United States remains competitive in the global digital economy,” said Miller.
For more on the general tax treatment of digital assets, see Checkpoint’s Federal Tax Coordinator 2d ¶ I-2151.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
