With lawmakers potentially acting as soon as next week, ITEP warns that crypto should not receive more favorable treatment than other investments, income or financial transactions
With lawmakers in Congress potentially moving forward on cryptocurrency tax legislation as soon as next week, a new report from the Institute on Taxation and Economic Policy urges them to reject proposals that would grant the crypto industry tax advantages unavailable to other industries, investments, and transactions.
The report examines proposals being considered by lawmakers to defer taxes on cryptocurrency received through mining and staking, exempt some crypto purchases from capital gains rules, and provide special treatment for transactions involving stablecoins.
“Crypto has not demonstrated any public benefit that would justify creating a special set of tax rules for the industry,” said Steve Wamhoff, ITEP’s director of federal tax policy and author of the report. “Income earned through crypto should be taxed like other income, and gains from crypto investments should be taxed like gains from other assets. Congress should not make the tax code less fair and more complicated simply because a politically powerful industry is asking it to.”
Under current law, cryptocurrency is generally treated as property for federal tax purposes. That means taxpayers owe tax when they receive crypto as compensation and must report capital gains when appreciated crypto is sold or exchanged, including when it is used to purchase something.
Crypto industry advocates are pushing Congress to create several exceptions to these longstanding principles. The report identifies six major reasons lawmakers should reject those proposals:
- Mining and staking rewards are income.
- Crypto is a speculative asset, not ordinary currency.
- Stablecoin exemptions would create complexity without a clear benefit.
- Crypto has enabled tax avoidance.
- Crypto frequently facilitates fraud and other criminal activity.
- Crypto often shifts wealth from ordinary investors to wealthy and highly resourced market participants.
The report also cautions lawmakers against using revenue from closing crypto-related loopholes to pay for new industry subsidies. Specifically, applying wash-sale rules to digital assets would simply correct an existing weakness in the tax code. The revenue recovered should not be treated as a fund for rewarding the industry that has benefited from the loophole.
“There is no reason someone earning crypto through staking should receive more favorable treatment than someone earning interest, and there is no reason someone spending appreciated crypto should receive more favorable treatment than someone selling appreciated stock,” Wamhoff said. “Lawmakers should close crypto tax loopholes—not create new ones.”
