Will the US have more favourable information on encryption taxes? A quick overview of the congressional hearing on encryption taxes.

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. The list of participants included representatives from policy research, legal practice, trading platforms, and industry associations. From the perspective of the development of U.S. digital asset tax policies and the current state of encryption taxation, this meeting was both a concentrated expression of existing industry demands and a reflection of future regulatory trends. The discussions on key topics such as the reporting obligations for digital assets, cost basis determination, and tax treatment will also play an important reference role in the future formulation of regulatory rules and Congressional legislation.

1. Wide Range of Topics: Overview of Perspectives from All Parties at the Hearing

1. Small tax exemption

Subject matter: Current tax laws require taxpayers to track and report all digital asset transaction gains on a transaction-by-transaction basis. Should a tax exemption threshold be established for low-value transactions (e.g., below $200) in accordance with Section 988 of the Internal Revenue Code regarding foreign currency transactions?

Main Point:

Jason Somensatto (Coin Center): pointed out that crypto payments are treated as asset transactions for tax purposes, causing users to calculate cost basis and capital gains every time they purchase goods or pay fees, making it nearly unmanageable. He believes that introducing a de minimis tax exemption could make digital assets feasible in retail payments, arguing that there is an established framework for foreign currency transactions, and extending its applicability would not weaken the tax system.

Lawrence Zlatkin (Coinbase): From the perspective of compliance execution, Coinbase processes billions of microtransactions each year. If gains are calculated on a per-transaction basis, it would make it impossible for both the platform and users to meet disclosure requirements. He believes that setting thresholds is a necessary step to reduce system friction.

Andrea S. Kramer (ASKramer Law): Opposed from the perspective of legal consistency, pointing out that IRC §61 clearly states that “income from all sources” should be included in the taxable range, and exemptions must have a clear legal source. She is concerned that small exemptions could become a tax evasion channel, as tax authorities find it difficult to distinguish between split transactions and genuine payments.

Sen. Elizabeth Warren: Supplementing the financial impact aspect, believes that large-scale exemptions could result in a revenue loss of billions of dollars, equivalent to a hidden subsidy for the encryption industry.

Mike Crapo (Chairman): believes the core of the issue lies in feasibility rather than ideology, and that technical solutions should be explored that can both alleviate compliance burdens and prevent evasion.

2. Taxation points for mining and staking rewards

Subject Matter: The current guidance from the IRS (Notice 2014-21) stipulates that income from virtual currency mining is recognized at the time of “acquisition.” With the popularization of staking mechanisms, whether taxation should be adjusted to the time of disposal has become a focal point.

Main Points:

Lawrence Zlatkin (Coinbase): Advocates for deferred taxation, pointing out that most staking reward tokens have no secondary market or liquidity at the time of acquisition, and immediate taxation would result in “phantom income”, violating the spirit of tax law that taxes based on the realization principle.

Jason Somensatto (Coin Center): He added that the value fluctuations of staking rewards are significant, and the IRS lacks the ability to determine valuations; taxing at the time of acquisition is neither fair nor practical.

Andrea S. Kramer (ASKramer Law): Citing IRC §451 and related case law, she emphasizes that a taxable event occurs as long as the taxpayer has complete dominion and control. She believes that deferring taxation will create new temporal arbitrage.

Annette Nellen (AICPA): Proposed a technical compromise solution, which could allow the Treasury to establish a “safe harbor” to determine the tax point based on token liquidity and lock-up period, and require disclosure explanations.

Sen. Bill Cassidy and Sen. Hassan: Inquire whether the IRS can objectively assess liquidity, the response is that price sources and locking data can be provided by the industry.

3. Information Reporting and Broker Definition

Topic: “Infrastructure Investment and Jobs Act” ( IIJA, 2021) requires “brokers” to report digital asset trading information to the IRS, but the proposed rules by the Treasury would include DeFi protocols, non-custodial wallets, and code developers, causing 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 noise data and will be unable to identify real risks. He suggested starting with custodial platforms as the main body and then gradually expanding.

Jason Somensatto (Coin Center): From the perspective of constitutionality and privacy, he believes that requiring decentralized protocols to report beyond the Bank Secrecy Act (BSA) authorization violates the protections of the Fourth Amendment.

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

Sen. Maggie Hassan: Believes that without widespread reporting, the IRS cannot establish a traceable system, increasing the risk of tax base erosion.

Ron Wyden (Ranking Member): In summary, he pointed out that Congress needs to find a new boundary between transparency and enforceability.

4. Rules for Washing Sales and Tax Avoidance Risks

Topic Content: The current rules on wash sales apply to securities and do not cover digital assets. Investors can create losses for tax deduction by quickly selling and then buying back.

Main points:

Sen. Chuck Grassley: Proposed that the rules should be extended to digital assets to prevent abuse.

Andrea S. Kramer (ASKramer Law): pointed out that the high volatility of the encryption market makes tax harvesting easier, and that expanding the rules is a necessary step to maintain fairness.

Annette Nellen (AICPA): believes that digital asset transaction records are transparent and can be technically traced, and are equally suitable for applying this rule.

Lawrence Zlatkin (Coinbase): Reminds that the market impact should be assessed, and mandatory delays in the repurchase period may weaken liquidity.

Jason Somensatto (Coin Center): It is necessary for the IRS to simultaneously issue guidance on calculation and reporting if extension rules are added, to avoid execution confusion.

5. Valuation and Pricing at Market Rate

Topic Content: Should actively traded digital assets be included in market-based valuation systems such as IRC §475 or §1256, to increase transparency and reduce deferral.

Main Points:

Annette Nellen (AICPA): Supports expansion, believes that pricing at market value can eliminate valuation lag and improve tax matching; suggests limiting to assets with high liquidity and publicly available price sources.

Andrea S. Kramer (ASKramer Law): believes that it can first be implemented at the institutional investor level, observing the execution effects before further promotion.

Ron Wyden (Ranking Member): Concerned whether the IRS can establish an authoritative price source database, Nellen promised AICPA could assist the industry in jointly formulating it.

6. Stablecoins and Payment Compliance

Topic: The frequent use of stablecoins in payments and settlements raises the question of whether small payments should be exempt from capital gains tax.

Main points:

Lawrence Zlatkin (Coinbase): believes that the price fluctuations of stablecoins are minimal, considering it unreasonable to tax them as property, and exemptions will help promote compliant payments.

Jason Somensatto (Coin Center): Additionally, it can be prevented from evasion through limits and transaction record requirements.

Sen. Elizabeth Warren: expressed concerns that the exemption could be used to split large sums of money, weakening reporting obligations.

Mike Crapo (Chairman): Proposed to explore low-risk payment exception ( low-risk transaction exception ), to balance enforceability and compliance.

7. Charitable Donations and Assessments

Topic: According to current rules, taxpayers donating digital assets must submit a “qualified appraisal” ( qualified appraisal ). Should this requirement be exempted in the same way as securities donations?

Main Points:

Annette Nellen (AICPA): pointed out that actively traded assets have public prices, and re-evaluation is meaningless; assessments should be exempted to reduce costs.

Andrea S. Kramer (ASKramer Law): Agrees with the proposal but emphasizes that non-liquid assets still need to be evaluated to prevent valuation manipulation.

Sen. Debbie Stabenow: expressed support for Congress to study standardized valuation mechanisms, balancing transparency and compliance efficiency.

8, Safe Harbor System Design

Topic: Senators and witnesses have repeatedly discussed the necessity of the “Safe Harbor” mechanism, aiming to provide predictable and operational compliance boundaries for specific transactions or actions. Participants believe that the digital asset sector has a high degree of technical complexity and valuation uncertainty, making it difficult to directly apply traditional standards. The Safe Harbor can serve as a transitional form for institutional implementation.

Main points:

Annette Nellen (AICPA): Emphasized the “operational functionality” of the safe harbor multiple times. She believes that in the field of staking and mining rewards, the tax point should be clearly defined through the safe harbor:

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

(2) If the token can be traded immediately, then it will be considered income upon acquisition.

She also suggested establishing a safe harbor in the lending and sourcing rules area to help taxpayers determine whether they are subject to taxable transfers.

Lawrence Zlatkin (Coinbase): Advocates for establishing a safe harbor for digital asset lending, similar to the IRC §1058 securities lending system, to clarify tax exemptions for “non-sale transfers”. He pointed out that currently the IRS lacks a clear definition of encryption lending, and some lending is mistakenly viewed as disposition. The safe harbor will 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 sector, suggesting that the Treasury allow for a technical transition period when implementing the new reporting system (1099-DA) to avoid misclassifying non-custodial wallets or protocol parties as brokers. He emphasized that the safe harbor should be a “compliance incentive” rather than a permanent exemption.

Andrea S. Kramer (ASKramer Law): Acknowledges that the safe harbor is operationally feasible, but warns that its “design scope must be strictly limited; otherwise, it will become a de facto industry exemption.” She suggests clearly defining termination conditions, reporting obligations, and information disclosure requirements during formulation.

Mike Crapo (Chairman): In summary, it is believed that the safe harbor mechanism could be a “regulatory buffer” for achieving a balance between taxation and compliance, and should be further discussed in the legislative process, especially regarding the application scenarios for emerging assets and hybrid transaction structures.

9. International Competition and Cross-Border Regulations

Topic: Does an uncertain tax framework undermine the United States' position in global digital asset competition? How to define the source and taxation rights for cross-border staking and lending?

Main points:

Sen. Cynthia Lummis: pointed out that regulatory ambiguity prompts companies to move to the EU and Asia, urging the Treasury and the IRS to accelerate the clarification of the system.

Lawrence Zlatkin (Coinbase): What compliance-focused companies need most is regulatory certainty; otherwise, they will be forced to move their business.

Jason Somensatto (Coin Center): believes that a stable tax system is a prerequisite for attracting long-term investment.

Annette Nellen (AICPA): The unclear source rules for cross-border pledging and lending may lead to double taxation and should align with OECD guidelines.

Ron Wyden (Ranking Member): The summary points out that the task of the Finance Committee is to maintain both competitiveness and the integrity of the tax base.

2. Background Review: The Evolution of the U.S. Encryption Tax System

In recent years, as the scale of digital asset trading continues to expand, the attention and scrutiny of U.S. tax authorities have simultaneously increased. A report released by the Treasury Inspector General for Tax Administration (TIGTA) in 2024 pointed out that the IRS's tax assessments in income tax audits involving digital asset transactions have risen from approximately $508,000 in the fiscal year 2022 to over $12.2 million as of May 2023. This trend not only reflects the increasing weight of digital assets in taxpayers' economic activities but also highlights the pressure that the current tax system faces in adapting to new types of assets. In response to the expansion of the digital asset market, U.S. tax policies have not been established overnight, but rather have evolved with practice. Since the IRS first defined virtual currency as property in 2014, it has gradually released regulations on issues such as hard forks, airdrops, information disclosure, and broker reporting obligations, gradually building a regulatory framework to address emerging assets.

As of now, the U.S. encryption tax system has formed a relatively complete framework based on existing regulations. In qualitative terms, virtual currency is regarded as property (Notice 2014-21), and sales, exchanges, or daily consumption require calculation of cost and fair value to recognize capital gains or losses. In terms of income, mining, staking rewards, and airdrops are identified as ordinary income, counted as current income upon receipt, and may trigger self-employment tax if conducted as a business activity. In terms of information reporting, the 2021 IIJA included digital assets in the broker reporting system, and in 2024, the Treasury and IRS will introduce Form 1099-DA, requiring reporting of total transaction amounts starting in 2025, and expanding to cost basis and gains and losses in 2026. It is important to note that the reporting of large receipts of digital assets under Form 8300 (§6050I) is currently still postponed. Regarding benefits and exceptions, long-term holdings can enjoy a lower capital gains tax rate, and qualified charitable donations can be deducted, but there is no small exemption policy (de minimis) similar to foreign currency transactions, nor has the wash sale rule been extended to digital assets.

Overall, the U.S. digital asset tax system has undergone an evolution from an early blank slate to a determination of property classification, followed by a gradual supplementation of rules, enhanced information disclosure, and the implementation of the broker system. Over the past decade, the IRS has continuously responded to new situations arising in the encryption market, such as forks, airdrops, mining, and payments, while Congress has established a legislative basis for broker information reporting through the Infrastructure Investment and Jobs Act. This series of changes has gradually brought digital assets from marginal gray trading into the mainstream tax framework, but it has also led to increased compliance burdens and unclear institutional boundaries. On one hand, the Treasury and IRS have promoted the implementation of 1099-DA information reporting rules, which has sparked intense controversy; the question of whether certain non-custodial entities should be included under the “broker” obligations remains unresolved. On the other hand, there are proposals or public opinion collections within Congress for a “small tax exemption” and extending the “wash sale rule” to digital assets, indicating that legislators are seeking to find a balance between expanding the tax base and reducing burdens. It can be said that this hearing is both a response to the institutional changes of the past decade and a prelude to the future direction of encryption taxation.

III. Potential Impact: Could the US Encryption Market See Better Tax Policies?

This hearing is not only a profound technical discussion but also a strategic dialogue about the positioning of digital assets in the U.S. tax system. The specific topics behind the small payment exemptions, the taxation timing of staking and mining, the boundaries of information reporting, the rules for wash sales, and the applicability of market pricing actually reflect three deeper sets of contradictions:

Innovation vs Fairness: The industry hopes to reduce compliance costs and tax uncertainty to promote the implementation of new models such as payments, lending, and staking; policymakers, on the other hand, are concerned that excessive concessions might undermine the consistency of the tax system and fiscal fairness.

Transparency vs Privacy: The IRS requires third-party reporting to understand the real transaction network, while the industry and some legislators are concerned that this attempt to extend to DeFi and non-custodial entities may be technically unfeasible and erode user privacy.

US vs the world: If US regulations remain unclear for a long time, capital and innovation will shift to Europe and Asia; lawmakers remind 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 discussions on highly controversial issues such as exemptions for small payments, the timing of taxation on staking, and safe harbors for lending; in the medium term, whether the wash sale rule and fair market value assessment will extend to digital assets will be key to addressing tax loopholes; in the long term, the redefinition of brokers and the framework for information reporting will determine whether the IRS will establish an enforceable compliance system for digital assets or continue to oscillate between insufficient data and limited enforcement.

It is foreseeable that the U.S. digital asset tax system is at the intersection of patchwork repairs and systematic reshaping. This hearing may not necessarily lead to legislative breakthroughs, but it will bring the core contradictions to the forefront. In the coming years, how the U.S. finds a sustainable balance between expanding the tax base and supporting innovation will not only affect the direction of its domestic tax governance but also shape the compliance path of the global encryption market.