Digital assets, or cryptocurrency, is gaining serious policy momentum in Washington, D.C. On July 18, President Trump signed into law the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which deals specifically with digital assets that have value pegged to the U.S. dollar or other fixed asset, known as stablecoins. Two other cryptocurrency-related bills have cleared the House and await Senate consideration: the Digital Asset Market Clarity Act which aims to establish a regulatory framework for digital assets, and the Anti-CBDC Surveillance State Act which would prohibit the Federal Reserve from issuing a central bank digital currency. Meanwhile, the White House released a digital assets roadmap to provide input on upcoming legislative and regulatory efforts.
Another proposal introduced this session is a cryptocurrency taxation bill introduced by Senator Cynthia Lummis (R-WY). This bill, S. 2207, builds upon the senator’s long-standing work in the sector. Many of the bill's provisions–including the de-minimis exemption for personal transactions and the deferral of taxation on staking and mining rewards until disposition–closely resemble the crypto tax provisions in the previously introduced Lummis-Gillibrand Responsible Financial Innovation Act (RIFA) co-sponsored by Senator Kirsten Gillibrand (D-NY).
Cryptocurrency continues to gain popularity even while taxpayers wait for policymakers to establish clear rules and provide regulatory certainty. Although many questions about the legal use of cryptocurrency would be best addressed through comprehensive legislation, the proposals by Lummis and others are meaningful at providing tax clarity for current cryptocurrency users while safeguarding the tax code from abuse.
De Minimis Exemption
One of the Lummis bill’s most notable provisions is a de minimis tax exemption that aims to make cryptocurrency more practical for everyday use. It would exempt taxpayers from capital gains tax liability where the capital gain is less than $300 from the time the cryptocurrency is acquired to the time it is disposed of so long as it is used for personal transactions. This exemption is subject to an annual cap of $5,000.
For example, if a taxpayer purchases one token at a value of $200 per token and its value rises to $500, taxpayers will not be subject to capital gains tax when the token is exchanged for personal goods and services, provided the transaction falls within the $5,000 annual cap. The bill adopts the definition of “personal transactions” used in the existing $200 capital gains exemption for personal foreign currency transactions. To prevent abuse, the bill would treat a series of related transactions as one transaction and aggregate the gains for the purpose of the exemption.
A de minimis exemption for personal transactions would simplify taxes for those using cryptocurrency as a substitute for cash and aligns its treatment with other cash substitutes, such as foreign currency.
Taxation of Staking and Mining
The Lummis bill would clarify the tax treatment of staking and mining by taxing rewards when they are sold or disposed of, rather than when they are earned. Mining, used in Proof-of-Work (PoW) blockchains such as Bitcoin, involves solving complex cryptographic problems that yield new tokens. Staking, used in Proof-of-Stake (PoS) blockchains, requires locking tokens into the blockchain in exchange for rewards, typically additional cryptocurrency. Mining and staking are both methods to validate blockchain transactions.
Delaying taxation of these assets until their disposition is a common sense way to avoid cash-flow problems and phantom tax liabilities from taxing unrealized gains. Unlike cash, cryptocurrency earned through mining or staking cannot be readily converted into liquid currency until it is sold, exchanged, or otherwise disposed of. Given price volatility, taxing at the point of realization ensures that taxpayers are not forced to liquidate holdings to pay tax liabilities based on values at the time of acquisition.
Wash Sales Rules
The Lummis bill would also extend wash sale rules to cryptocurrency. A wash sale occurs when a taxpayer sells a security at a loss then buys a substantially identical security within 30 days as a tax loss harvesting strategy. Current law prohibits claiming such losses for securities but not for cryptocurrency. Applying these safeguards to cryptocurrency transactions is a commonsense measure reflecting that some users buy and sell cryptocurrency as an investment. The bill defines and exempts cryptocurrency dealers from this rule and extends the wash sale rules to options, forward contracts, futures, and derivatives.
Taken together with de minimis capital gains tax exemption for personal transactions, extending wash sale rules represents a thoughtful approach to apply existing tax laws to everyday cryptocurrency use.
Other Provisions
The Lummis bill also includes several other provisions to address specific tax situations. The bill clarifies that cryptocurrency lending agreements are not taxable transactions, applies a mandatory mark-to-market election to cryptocurrency dealers similar to securities dealers, and exempts charitable cryptocurrency transactions from requiring a qualified appraisal similar to charitable securities transactions.
More Reform Is Needed
While the Lummis bill deals solely with taxation, it would be complemented by policies to address challenges presented by the Infrastructure Investment and Jobs Act (IIJA). IIJA included a provision to require cryptocurrency brokers to report transactions to the IRS, but defined “broker” so broadly that it could include transaction validators such as miners, stakers, or software developers. An amendment to narrow this definition was filed but ultimately did not succeed.
The IRS has released proposed regulations implementing the IIJA law, which we testified were unworkable and instead suggested using a sandbox method to develop regulations for cryptocurrency. The regulations impacted Form 1099-B, which was already widely considered by tax preparers as the worst tax form. The IRS later released a new form, 1099-DA, for reporting cryptocurrency transactions. We warned that the form was critically flawed and would prove burdensome to taxpayers. We were proven right, with our annual tax complexity report noting that the IRS significantly increased the number of forms it expected to receive by nearly 3 billion and the amount of hours it expected taxpayers to spend filing taxes from 674 million hours to 1.5 billion hours because of the IIJA’s broker requirements. We asked that the regulation be dropped and reworked.
Congress ultimately voted to overturn the final regulations implementing the IIJA’s broker reporting requirements through the Congressional Review Act (CRA), though the law still remains on the books. While the IRS cannot reissue substantially similar regulations, clarifying in statute who qualifies as a “broker” would give taxpayers certainty across future administrations.
Conclusion
As policymakers consider their stance on cryptocurrency, the Lummis proposals offer a timely, targeted approach to providing tax certainty for everyday users. It is both pro-taxpayer and responsible, safeguarding common transactions from undue tax burdens while protecting the tax code from abuse. While broader legislation will be necessary to establish comprehensive rules for cryptocurrency, this represents an important step forward.