Correction, 7/18/2025: This article has been updated to correct a misattributed in the second to last paragraph. A previous version of the article attributed a quote from Mersinger to Reilly.
The Tax Code’s current tax treatment of digital assets remains in need of industry-specific tailoring to ease concerns of uncertainty and promote a reasonable level of voluntary compliance, House taxwriters heard from expert witnesses at a hearing Wednesday morning on Congress’ opportunity to modernize digital asset policies.
No Longer ‘Niche’
The objective behind the Ways and Means Subcommittee on Oversight’s July 16 hearing was to discuss how to make the United States the “crypto capital of the world” with a 21st century statutory and regulatory framework.
Oversight Chair David Schweikert (R-AZ) began the hearing with an acknowledgement of the “complex relationship between digital assets and traditional assets.” He said the subcommittee, as part of the House taxwriting body, must consider “how we equalize and create a sense of fairness” in the taxation and of digital assets, particularly with a “ruleset” on the recognition of gains from digital asset transactions.
Schweikert said today, “more and more companies are exploring ways to use crypto assets” in their portfolios. But the IRS currently “defines crypto as a property, not currency.” And while there are some “additional rules specific to digital assets,” the lack of applicability of existing laws and guidance to this evolving space leaves “many stakeholders often confused when it comes to the tax complications.”
Ranking Member Terri Sewell (D-AL) agreed that “Congress needs to examine digital assets as a whole” and that it is “really, really important” for the U.S. to “lead in this area.” Sewell observed over her 14 years on the Hill that “the rate in which digital assets have gone from niche blog posts to the front page of global publications is something to behold.”
Given this exponential and recent growth, it is vital for lawmakers to “protect consumers … remove bad actors, and … ensure fair tax treatment for all,” Sewell said.
Need for Certainty
Each witness in their opening remarks and interactions with committee members during the hearing’s question period hammered home the need for legislation and updated regulatory guidance on issues unique to digital assets, including the different ways they are acquired or transacted.
According to witness Blockchain Association CEO Summer Mersinger, the “total market capitalization of digital assets now stands at over $3.7 trillion,” and over 50 million U.S. taxpayers own at least one digital asset. She said the U.S. “is home to more than half of the world’s blockchain enterprise ‘unicorns’ – private companies valued at over $1 billion.”
Yet there is “no clear tax guidance” on “transactions that are commonplace and essential for the functioning of blockchain networks – such as staking rewards, token wrapping, or protocol upgrades,” said Mersinger. At the same time, digital asset information reporting is a “nightmare” for taxpayers and businesses. Mersinger said the IRS itself admitted it “lacks the technology infrastructure to adequately process this increase in incoming forms without significant additional investments.”
Fidelity Investments Vice President and Senior Tax Counsel Sarah Reilly testified that the Tax Code provisions governing digital assets “were written before the broad adoptions” of digital assets in modern society. “In many instances, digital assets face disparate treatment as compared with traditional investment assets (like securities and commodities)” despite increased popularity.
“The inconsistency in tax treatment under various tax rules results in adverse outcomes for taxpayers and the industry overall.”
Alison Mangiero, head of staking policy and industry affairs at the Crypto Council for Innovation, said the gap from such consistencies poses compliance, enforcement, and competitive risks. “As the use of digital assets continues to grow – both by individual users and by financial institutions – the urgency of addressing this policy gap has only increased.”
Coin Center Director of Policy Jason Somensatto said an example of a problematic area of the Tax Code is the requirements under IRC § 6050I. This section was “originally intended for physical cash” but now applies to “digital peer-to-peer transactions,” which results in individuals needing to “report detailed personal information about counterparties they may not know, in a way that raises significant concerns about privacy, speech rights, and self-incrimination.”
Consumer Federation of America Director of Investor Protection Corey Frayer agreed future policies should “focus on the actual difference between crypto and the rest of the financial system, which is narrowly this different way of settling transactions … it is a very specific and identifiable thing, and we have to keep that in mind while we’re thinking about how to do regulatory policy and tax policy with regards to these assets.”
Too Many Taxable Events
The witnesses told the committee that a pressing area of concern is that under current rules, digital asset holders trigger taxable, reportable events far too often from ordinary operations.
The easiest solution to mitigate the amount of taxable transactions is to enact a de minimis threshold, several witnesses recommended. Under existing rules, every digital asset transaction is a taxable event, including small transactions like purchases of a cup of coffee or a song on a digital platform. Putting a dollar-amount floor on these transactions will ease the burden on taxpayers, the committee heard.
Additionally, as Mersinger said to Representative Michelle Fischbach (R-MN), the treatment of so-called staked crypto tokens as ordinary income upon receipt when the assets themselves are property could result in a taxpayer having “a taxable event every day, or, according to some blockchains, every six seconds.” Staking, the witnesses largely agreed, is an opportunity for lawmakers and the IRS to emphasize.
Reilly’s written testimony explains that staking “is essential to the integrity, security, and success of blockchains utilizing proof-of-stake consensus mechanisms.” The process is “the method by which transactions are validated on blockchain protocols” that use such mechanisms. Normally, a “validator is chosen at random to validate the next ‘block'” and in exchange receive “staking rewards, which include both transaction fees and newly minted digital assets.”
Mersinger told the committee her father is a farmer in South Dakota, and “the idea of taxing these rewards upon receipt” is akin to “taxing the farmer for the crops before they sell them. They wouldn’t have the money to pay that tax until they sell their crops.”
Similarly, Mersinger, in an exchange with Representative Nathaniel Moran (R-TX), suggested that “these staking rewards should be taxed at the time of sale or disposition, not at the time of creation. When you bake a loaf of bread, you’re not taxed when it comes out the oven. You’re taxed when you sell it.”
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