Could the US have more crypto tax benefits? A quick look at the congressional hearing on crypto taxation

On October 1, 2025, the U.S. Senate Finance Committee held a hearing titled "Examining the Taxation of Digital Assets," chaired by Committee Chairman Mike Crapo. Participants included representatives from policy research, legal practice, trading platforms, and industry associations. Considering the development of U.S. digital asset tax policy and the current state of the crypto tax system, this meeting served as both a focused expression of existing industry demands and a reflection of future regulatory trends. The findings from the discussions on key topics such as digital asset reporting obligations, cost basis determination, and tax treatment will serve as important references for subsequent regulatory rulemaking and congressional legislation. 1. Small Tax Exemptions: Current tax laws require taxpayers to track and report all digital asset transaction gains. Should a tax exemption threshold be established for low-value transactions (e.g., under $200) similar to the provisions of Section 988 of the U.S. Internal Revenue Code regarding foreign currency transactions? Key Points: Jason Somensatto (Coin Center): He pointed out that crypto payments are treated as assets for tax purposes, forcing users to calculate both the cost basis and capital gains for every purchase or fee, making it virtually unworkable. He argued that introducing a de minimis tax exemption would make crypto assets viable for retail payments, arguing that a mature framework already exists for foreign currency transactions and extending its application would not weaken the tax system. Lawrence Zlatkin (Coinbase): From a compliance perspective, Coinbase processes billions of microtransactions annually. Calculating revenue on a transaction-by-transaction basis would prevent both the platform and its users from meeting disclosure requirements. He believes that establishing thresholds is a necessary step to reduce systemic friction. Andrea S. Kramer (ASKramer Law): Opposed the bill from a legal consistency perspective, noting that IRC §61 explicitly states that "income from all sources" is taxable, and that exemptions must have a clear legal basis. She expressed concern that small exemptions could become tax shelters because tax authorities would have difficulty distinguishing between split transactions and actual payments. Sen. Elizabeth Warren (Senator): Adding to the fiscal impact, she argued that large-scale exemptions could result in billions of dollars in lost revenue, amounting to an implicit subsidy for the crypto industry. Mike Crapo (Chair): The core issue lies in enforceability, not philosophy, and that technical solutions should be explored that both reduce the compliance burden and prevent circumvention. 2. Tax Timing of Mining and Staking Rewards Topic: Current IRS guidance (Notice 2014-21) stipulates that income from virtual currency mining should be included in income upon acquisition. With the widespread adoption of staking mechanisms, the question of whether this should be adjusted to tax upon disposition has become a hot topic. Key Views: Lawrence Zlatkin (Coinbase): Advocates for deferred taxation, noting that most staking reward tokens have no secondary market or liquidity upon acquisition. Immediate taxation would create "phantom income," violating the realization-based tax principle. Jason Somensatto (Coin Center): He added that the value of staking rewards fluctuates greatly, and the IRS lacks the ability to determine a valuation, making taxation upon receipt neither fair nor workable. Andrea S. Kramer (ASKramer Law): Citing IRC §451 and related precedent, she emphasized that a taxable event occurs as long as the taxpayer acquires complete dominance and control. She believes that delaying taxation will create new timing arbitrage. Annette Nellen (AICPA): She proposed a technical compromise, suggesting that the Treasury Department could establish a "safe harbor" to determine the taxable date based on token liquidity and lock-up periods, and require disclosure.

Sen. Bill Cassidy, Sen. Hassan (Senators): When asked whether the IRS can objectively judge liquidity, the answer was that the industry can provide price sources and locked position data.

3. Information Reporting and Broker Definition

Topic: The Infrastructure Investment and Jobs Act (IIJA, 2021) requires "brokers" to report digital asset transaction information to the IRS, but the Treasury Department's proposed rules include DeFi protocols, non-custodial wallets and code developers in the scope, which has caused controversy.

Main points:

Lawrence Zlatkin (Coinbase): Pointed out that Coinbase supports third-party reporting, but if the definition is too broad, the IRS will receive a massive amount of noisy data and will not be able to identify real risks. He suggested that it should be implemented first with custodial platforms as the main body and then gradually expanded.

Jason Somensatto (Coin Center): From the perspective of constitutionality and privacy, it is believed that requiring decentralized protocols to report exceeds the authorization of the Bank Secrecy Act (BSA) and violates the protection of the Fourth Amendment.

Andrea S. Kramer (ASKramer Law): Emphasized that regulatory targets should focus on intermediaries that can control the flow of funds, otherwise the implementation costs will be too high.

Sen. Maggie Hassan (Senator): It is believed that without widespread reporting, the IRS will not be able to establish a traceability system, and the risk of tax base loss will be greater.

Ron Wyden (Ranking Member): In summary, it is pointed out that Congress needs to find a new boundary between transparency and enforceability. 4. Wash Sale Rules and Tax Avoidance Risks Topic: Current wash sale rules apply to securities and do not cover digital assets. Investors can create losses by quickly selling and then buying back to offset taxes. Key Points: Sen. Chuck Grassley: Proposed extending the rules to digital assets to prevent abuse. Andrea S. Kramer (ASKramer Law): Pointed out that the high volatility of the crypto market makes tax harvesting more likely to occur, and expanding the rules is a necessary step to maintain fairness. Annette Nellen (AICPA): Believes that digital asset transaction records are transparent and technically traceable, and are therefore also suitable for the application of the rules. Lawrence Zlatkin (Coinbase): Reminds that the market impact should be assessed, and that a mandatory delay in the repurchase period may weaken liquidity. Jason Somensatto (Coin Center): Added that if the rules are expanded, the IRS must simultaneously publish calculation and reporting guidance to avoid implementation confusion. 5. Mark-to-Market and Valuation Topic: Should actively traded digital assets be included in the mark-to-market system, such as IRC §475 or §1256, to improve transparency and reduce deferrals? Main Views: Annette Nellen (AICPA): Supports expansion, believing that mark-to-market can eliminate valuation lags and improve tax matching; recommends limiting it to assets with high liquidity and public price sources.

Andrea S. Kramer (ASKramer Law): She believes it can be implemented first at the institutional investor level, and then expanded after observing the effectiveness of the implementation.

Ron Wyden (Ranking Member): She is concerned about whether the IRS can establish an authoritative price source database. Nellen promised that the AICPA could assist the industry in jointly developing one.

6. Stablecoins and Payment Compliance

Topic: Stablecoins are frequently used in payments and clearing. Should capital gains tax be exempted for small payments?

Main points:

Lawrence Zlatkin (Coinbase): He believes that stablecoin price fluctuations are small, and it is unreasonable to tax them as property. The exemption will help promote compliant payments.

Jason Somensatto (Coin Center): In addition, circumvention can be prevented through limits and transaction record requirements.

Sen. Elizabeth Warren (Senator): Expressed concern that the exemption could be used to split large amounts of funds and weaken reporting obligations. Mike Crapo (Chair): We propose exploring a low-risk transaction exception to balance enforceability and compliance. 7. Charitable Donations and Appraisals: Under current regulations, taxpayers donating digital assets must submit a "qualified appraisal." Should this requirement be exempted, similar to securities donations?

Main points:

Annette Nellen (AICPA): pointed out that actively traded assets already have public prices, and repeated valuations are meaningless. Valuations should be exempted to reduce costs.  

Andrea S. Kramer (ASKramer Law): agreed with the suggestion, but emphasized that illiquid assets still need to be valued to prevent valuation manipulation.  

Sen. Debbie Stabenow (Senator): expressed support for Congress to study standardized valuation mechanisms to balance transparency and compliance efficiency. 8. Safe Harbor System Design: Senators and witnesses repeatedly discussed the necessity of a "Safe Harbor" mechanism, which aims to provide predictable and actionable compliance boundaries for specific transactions or behaviors. Participants believed that the digital asset sector is highly technically complex and has valuation uncertainties, making it difficult to directly apply traditional standards to existing rules. Safe Harbor can serve as a transitional form of institutional implementation.  

Main points: 

Annette Nellen (AICPA): repeatedly emphasized the "operability function" of the safe harbor. She believes that in the areas of staking and mining rewards, the safe harbor should be used to clarify the timing of taxation: 

(1) If the token liquidity is insufficient or there is a lock-up period, the recognition of income can be delayed; 

(2) If the token can be traded immediately, the income is maintained upon acquisition. She also suggested establishing a safe harbor in the areas of lending and borrowing and source rules to help taxpayers determine whether something constitutes a taxable transfer. Lawrence Zlatkin (Coinbase): advocated for the establishment of a safe harbor for digital asset lending, modeled after IRC §1058, which would clarify the tax exemption for "transfers other than sales." He pointed out that the IRS currently lacks a clear definition of crypto lending, and some lending is mistakenly considered a disposal. The safe harbor would help the market maintain liquidity without sacrificing tax transparency. Jason Somensatto (Coin Center): Supports the introduction of a "limited safe harbor" in the reporting and compliance areas, and recommends that the Treasury Department allow a technical transition period when implementing the new reporting system (1099-DA) to avoid misclassifying non-custodial wallets or parties to agreements as brokers. He emphasized that the safe harbor should be a "compliance incentive" rather than a permanent exemption. Andrea S. Kramer (ASKramer Law): Acknowledges the operational feasibility of the safe harbor, but cautions that its "scope must be strictly limited," otherwise it will become a de facto industry exemption. She recommends clarifying termination conditions, reporting obligations, and information disclosure requirements during formulation. Mike Crapo (Chair): In summary, we believe that the safe harbor mechanism may be an "institutional buffer" to achieve a balance between taxation and compliance, and should be further discussed during the legislative process, especially in the application scenarios of emerging assets and hybrid transaction structures. 9. International Competition and Cross-Border Rules Topic: Does an uncertain tax framework weaken the United States' position in global digital asset competition? How to define the source and taxing rights in cross-border pledges and lending?  

Main Views: 

Sen. Cynthia Lummis (Senator): Pointed out that regulatory ambiguity has prompted companies to move to the EU and Asia, and asked the Treasury Department and IRS to speed up the clarification of the system.  

Lawrence Zlatkin (Coinbase): What companies that need more compliance support most is certainty in the rules, otherwise they will be forced to relocate their businesses.  

Jason Somensatto (Coin Center): Believes that a stable tax system is a prerequisite for attracting long-term investment. Annette Nellen (AICPA): She suggested that unclear source rules for cross-border pledges and loans could lead to double taxation and should be aligned with OECD guidelines. Ron Wyden (Ranking Member): In summary, the Fiscal Committee's mission is to maintain both competitiveness and the integrity of the tax base. II. Background Review: The Evolution of the U.S. Cryptocurrency Tax System In recent years, as the scale of digital asset transactions has continued to expand, the attention and scrutiny of U.S. tax authorities have increased. A 2024 report by the Internal Revenue Service's Inspector General's Office (TIGTA) noted that IRS tax assessments in income tax audits involving digital asset transactions had increased from approximately $508,000 in fiscal year 2022 to over $12.2 million by May 2023. This trend not only demonstrates the increasing importance of digital assets in taxpayers' economic activities but also highlights the pressures facing the existing tax system in adapting to this emerging asset class. In line with the expansion of the digital asset market, US tax policy has evolved over time, not overnight. Since first defining virtual currencies as property in 2014, the IRS has issued regulations addressing hard forks, airdrops, information disclosure, and broker-dealer reporting obligations, gradually establishing a framework for addressing these emerging assets. To date, the US crypto tax system has formed a relatively comprehensive framework based on existing regulations. Qualitatively, virtual currencies are considered property (Notice 2014-21). Any sale, exchange, or daily consumption of virtual currencies requires calculating the cost and fair value to recognize capital gains or losses. Regarding income, mining, staking rewards, and airdrops are considered ordinary income and included in current income when earned. If considered as a business activity, they may also trigger self-employment tax. Regarding information reporting, the 2021 IIJA included digital assets in the broker-dealer reporting system. In 2024, the Treasury Department and the IRS introduced Form 1099-DA, requiring reporting of total transactions starting in 2025 and expanding to cost basis and gains and losses in 2026. It is important to note that the reporting of large digital asset receipts under Form 8300 (§6050I) remains suspended. Regarding benefits and exceptions, long-term holdings can enjoy a lower capital gains tax rate, and qualified charitable donations are deductible. However, there is no de minimis exemption similar to that for foreign currency transactions, and wash sale rules have not yet been extended to digital assets. Overall, the US digital asset tax system has evolved from an early vacuum to the establishment of a property-based tax system, and then to the gradual expansion of rules, enhanced information disclosure, and the implementation of a broker-dealer system. For over a decade, the IRS has continuously responded to emerging crypto market trends such as forks, airdrops, mining, and payments, while Congress established the legislative basis for broker-dealer reporting through the Infrastructure Investment and Jobs Act. These changes have gradually brought digital assets from marginalized, shady transactions into the mainstream tax framework, but have also brought with them practical challenges such as increased compliance burdens and unclear institutional boundaries. On the one hand, the Treasury Department and the IRS have pushed for the implementation of 1099-DA reporting rules, sparking heated debate in the process. The question of whether some non-custodial entities should be subject to "broker-dealer" obligations remains unresolved. On the other hand, proposals within Congress, such as a "small tax exemption" and the extension of the "wash sale rule" to digital assets, or public comment solicitations, indicate that lawmakers are seeking to strike a balance between expanding the tax base and reducing the burden. It can be said that this hearing is both a response to the institutional evolution of the past decade and a prelude to the future direction of crypto taxation. III. Potential Impact: Could the US Crypto Market Welcome Better Tax Policies? This hearing was not only a profound technical discussion, but also a strategic dialogue on the positioning of digital assets in the US tax system. Behind these specific issues—small-value payment exemptions, the timing of taxation for staking and mining, the boundaries of information reporting, wash sale rules, and the scope of mark-to-market pricing—are three deeper contradictions: Innovation vs. Fairness: The industry hopes to reduce compliance costs and tax uncertainty to promote the implementation of new models like payments, lending, and staking; policymakers worry about excessive concessions that could undermine tax consistency and fiscal fairness. Transparency vs. Privacy: The IRS requires third-party reporting to understand the true transaction network, while the industry and some lawmakers worry that expanding this to DeFi and non-custodial entities may be technically unfeasible and erode user privacy. US vs. Global: If US rules remain vague for a long time, capital and innovation will shift to Europe and Asia. Lawmakers have warned that the US cannot pursue "competitiveness" at the expense of its tax base and fiscal stability. From a policy perspective, in the short term, Congress may engage in further consultations on highly contentious issues such as small-value payment exemptions, the timing of pledge taxation, and safe harbors for lending. In the medium term, whether wash sale rules and mark-to-market pricing will be extended to digital assets will be key to closing tax loopholes. In the long term, the restructuring of broker-dealer definitions and information reporting frameworks will determine whether the IRS will develop an enforceable digital asset compliance system or continue to struggle between insufficient data and limited enforcement. The US digital asset tax system is foreseeably at the intersection of patchwork repairs and systemic restructuring. This hearing may not lead to a legislative breakthrough, but it will bring core contradictions to the fore. In the coming years, how the US finds a sustainable balance between expanding the tax base and supporting innovation will not only influence the direction of its own tax governance but also shape the compliance path of the global crypto market.