In accordance with a President Trump executive order, the administration’s task force on digital asset policy released its report detailing legislative proposals for Congress and guidance projects that should be prioritized by the IRS.
Working Group Report
Trump’s executive order, issued January 23, established the Working Group for Digital Asset Markets in the National Economic Council. One of many executive actions taken by Trump in his first week in office this year, the order directed the Working Group to deliver a report exploring ways the federal government can promote the “responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy.”
The Working Group submitted its report to Trump and the administration shared its findings July 30. The group is chaired by Special Advisor for AI and Crypto David Sacks and features agency leaders across several agencies, including Treasury Secretary Scott Bessent.
Before discussing tax, the bulk of the report highlights the ever-evolving state of digital assets globally, those who participate in it, and security or fraud risks. Regarding tax side, the report said that new legislation and guidance addressing the “special characteristics” of digital assets “will help taxpayers understand their federal tax obligations,” furthering the “growth and use of digital assets” in the U.S.
A supplemental fact sheet released with the report said future digital asset tax policies should ensure “fairness” and “predictability” in alignment with “new technologies.”
Recommendations
The Working Group made several requests of the IRS for new or updated guidance. First, the report noted that existing rules on the corporate alternative minimum tax (CAMT) do not address financial accounting for “unrealized gains and losses on cryptocurrency, or on investments generally.”
The CAMT is based on adjusted financial statement income, or ‘book income,’ and typically applies to large corporations with an average of more than $1 billion in book income over the most recent three-year period. Guidance is needed, according to the report, to determine treatment of gains and losses on investments “other than stock and partnership interests.”
Forthcoming guidance should also address “whether a trust that otherwise qualifies as an investment trust treated as a grantor trust fails to qualify as such if the trust stakes digital assets owned by the trust,” the report continued.
Additionally, existing rules do not cover the taxability of transactions involving wrapped or unwrapped digital assets. As explained by the Working Group, wrapping “is a technique used to convert a digital asset native to one blockchain” into one native to another blockchain. The IRS must say if these transactions are taxable, and to what extent.
On the legislative front, Congress should pass a law characterizing digital assets as either commodities or securities, per the report. Areas of the Tax Code that “should be expanded to apply to actively traded fungible digital assets” include those covering mark-to-market elections (IRC § 475), publicly traded partnerships (IRC § 7704), and trading safe harbors (IRC § 864(b)).
Trump II’s Crypto Focus
So far, the 119th Congress and second Trump administration has scrapped Biden-era rules classifying many autonomous decentralized blockchain protocols (also referred to as ‘middlemen’) as digital asset brokers subject to gross proceeds and basis reporting regs that also apply to centralized exchanges under IRC § 6045.
Through special procedures pursuant to the Congressional Review Act, Congress passed – and Trump signed – H.J. Res. 25, obsoleting the rules and treating the DeFi middlemen regs as having never taken effect.
During an eventful week on the Hill in July themed around digital asset policy, Congress advanced the GENIUS Act, setting a first-of-its kind regulatory framework and bringing crypto into the fold. But as the House Ways and Means Oversight Subcommittee heard from stakeholders in the digital asset industry, there is much for the federal government to pin down as far as the tax treatment of certain types of transactions unique to cryptocurrencies.
In remarks accompanying the Working Group report, Bessent said: “Under President Trump, we are exploring new possibilities in decentralized computing and digital payments to unlock the promise of blockchain technology.”
Representative French Hill (R-AZ), who chairs the House Financial Services Committee, in a statement last Wednesday praised the work done by the administration toward “making America the crypto capital of the world.”
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