Washington Takes Fresh Aim At Crypto Taxes With New IRS Review Bill

Kraken sent 56 million tax forms to the Internal Revenue Service last year. Nearly a third covered transactions worth less than a dollar. More than 75% were for trades under $50. Those numbers, cited by the crypto exchange last month, have added weight to a growing call in Congress to rethink how small digital asset transactions are taxed in the United States.

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A Study, Not An Exemption

A bipartisan group of House lawmakers introduced a bill Tuesday that takes a first formal step toward addressing that burden.

Called the Digital Asset Protection, Accountability, Regulation, Innovation, Taxation and Yields Act — or PARITY Act — the legislation does not create a tax break for small crypto transactions.

What it does is direct the Treasury Department to examine whether one should exist, and to report back within 180 days on what relief it can offer under its current authority.

Innovation should create opportunity for everyone, not just those already ahead.

The Digital Asset PARITY Act modernizes the tax code for the digital age, creates clearer rules, and ensures emerging financial tools help expand financial inclusion and pathways to wealth.

It is…

— Rep. Steven Horsford

The bill also calls for a study on how much paperwork small crypto transactions generate for taxpayers, and on the total number of transactions under $200 that get reported to the IRS each year.

The Treasury would also be asked to outline what resources the IRS would need if a de minimis exemption were eventually passed into law — and what kinds of fraud or abuse such an exemption might invite.

Republican Representative Max Miller, one of the bill’s sponsors, said the US tax code has not kept pace with how fast digital assets have grown.

“As America continues to lead the world in innovation, our tax code has failed to keep pace with the rapid growth of digital assets and modern financial technology,” Miller said in a statement.

What Else The Bill Covers

The PARITY Act carries over a section from an earlier draft that would treat regulated payment stablecoins like cash for tax purposes.

Under that provision, no gains or losses would be recognized on stablecoin transactions unless the cost basis of those tokens falls below 99% of their redemption value.

The bill also seeks to apply wash sale rules to crypto — a change that would close a loophole that stock investors are not allowed to use but crypto traders currently are.

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Democratic Representatives Steven Horsford and Suzan DelBene joined Miller and Republican Rep. Mike Carey in introducing the bill. Horsford had previously released a discussion draft of the legislation back in March.

A Race Against The Clock

Miller told Bloomberg Tax he believes the bill can pass before this Congress wraps up. That deadline falls in January, after the November midterm elections in which every House seat will be contested.

Featured image from Getty Images, chart from TradingView