Digital Asset Tax Certainty Act

This section introduces a new tax exemption for small fees paid in digital assets. Specifically, no gain or loss will be recognized on the disposition of a digital asset used to pay a 'de minimis network fee' or a 'de minimis transaction fee,' each capped at $10 per transaction. This aims to reduce the tax burden and complexity for everyday digital asset users who incur small fees for network validation or trading services. The exemption does not apply to professional traders or those with high transaction volumes, nor to assets already subject to mark-to-market accounting.

This section allows taxpayers to elect a simplified mark-to-market accounting method for 'widely traded digital assets.' Instead of tracking individual basis and gain/loss for each transaction, taxpayers would recognize annual gain or loss based on the net change in value of their holdings of a designated type of digital asset, plus net proceeds from sales/exchanges. All such gains and losses would be treated as short-term capital gains or losses. This aims to significantly reduce the complexity of tracking numerous transactions for highly liquid digital assets.

This section provides special tax rules for 'qualified U.S. dollar stablecoins.' It generally treats the basis and value of these stablecoins as their redemption value (i.e., $1 per stablecoin) for tax purposes, provided their market value remains within a narrow band (99.5% to 100.5%) of that redemption value. This means that minor fluctuations in stablecoin value would not trigger taxable gain or loss, effectively treating them more like cash for tax purposes. Exceptions apply to professional traders and high-volume transactors.

This section extends the nonrecognition rules of Section 1058 of the Internal Revenue Code, which currently apply to securities lending agreements, to 'traded digital assets.' This means that transfers of traded digital assets under certain lending agreements (where the transferor receives substantially identical assets back and is compensated for any income earned) would not be treated as taxable sales or exchanges. This aims to provide tax parity between digital asset lending and traditional securities lending.

This section amends Section 475 to allow dealers and traders in 'covered digital assets' to elect mark-to-market accounting. This means they would recognize gain or loss on their holdings at the end of each taxable year, as if the assets were sold at fair market value, rather than waiting for actual disposition. This aligns their tax treatment with that of securities dealers and traders, providing a more accurate reflection of their economic income and reducing complexity for high-volume activities. 'Covered digital assets' include widely traded digital assets, stablecoins, pool tokens, and certain derivatives or hedges.

This section amends Section 864(b)(2) to create a safe harbor for foreign persons trading 'traded digital assets' in the United States. Similar to existing safe harbors for securities and commodities, this provision specifies that trading in traded digital assets through a U.S. broker or for a taxpayer's own account (unless a dealer) will not be considered engaging in a U.S. trade or business. This helps clarify that foreign investors' digital asset trading activities in the U.S. will not automatically subject them to U.S. income tax on those gains.

This section makes several changes to the rules for charitable contributions of digital assets. First, it exempts 'qualified U.S. dollar stablecoins' and 'widely traded digital assets' from the appraisal requirement for noncash contributions, similar to publicly traded securities. Second, it disallows deductions for contributions of 'conversion eligible digital assets' (a residual category of digital assets) but allows for nonrecognition of gain if these assets are sold or exchanged for stablecoins and the proceeds are contributed to charity within 7 days or by year-end. This aims to facilitate charitable giving of digital assets while preventing abuse.

This section extends the wash sale rules (Section 1091) to 'traded digital assets' (excluding qualified U.S. dollar stablecoins). The wash sale rule prevents taxpayers from deducting a loss on the sale of an asset if they acquire a 'substantially identical' asset within 30 days before or after the sale. This amendment aims to prevent taxpayers from artificially generating tax losses by selling digital assets and immediately repurchasing them. It also includes special rules for tokenized digital assets and an exception for assets acquired in connection with validation activities or as ordinary income.

This section extends the constructive sale rules (Section 1259) to digital assets (excluding qualified U.S. dollar stablecoins). Constructive sale rules prevent taxpayers from avoiding capital gains tax by entering into transactions that eliminate their risk of loss and opportunity for gain on an appreciated position, without actually selling the asset. This amendment ensures that such 'hedging' transactions involving digital assets are treated as taxable events, preventing tax deferral or conversion of short-term gains to long-term gains.

This section amends Subpart F of the Internal Revenue Code to include digital assets as 'passive assets' for purposes of determining Subpart F income and Passive Foreign Investment Company (PFIC) status. This means that income from digital assets held by controlled foreign corporations (CFCs) or PFICs would generally be treated as passive income, subject to immediate U.S. taxation for U.S. shareholders. It also introduces specific rules for 'passive digital asset validation supporting income' and payments from digital asset lending agreements, with an exception for active dealers in covered digital assets.

This section introduces special source rules for gains on the disposition of 'traded digital asset property' by 'specified possession resident individuals' (U.S. citizens who become bona fide residents of U.S. territories like Puerto Rico or Guam). Generally, such gains would be sourced within the U.S., unless the individual provides specific information and demonstrates that the gain is attributable to value increases while a bona fide resident of the possession. An election is also provided for widely traded digital assets to mark them to market upon becoming a possession resident, after which subsequent gains would be sourced in the possession.

This section clarifies the application of registration-required obligation rules (Sections 163(f) and 4701) to digital assets. It exempts 'qualified U.S. dollar stablecoins' from the rules that deny deductions for interest on unregistered obligations, effectively treating them as if they were registered. For other digital assets, it clarifies that disclosure statements can be included in written terms or marketing materials, and for digital assets without a fixed maturity date, the maturity date is deemed to be 25 years after issuance. This aims to adapt existing rules for debt instruments to the digital asset context.

This section modifies rules related to the character of gains and losses for digital assets. It extends the worthless asset rules (Section 165) to digital assets (excluding certain tokenized securities), treating a loss from a worthless digital asset as a loss from a sale or exchange on the last day of the taxable year. It also expands the definition of 'specified asset futures contract' (Section 1234B) to include futures contracts in digital assets, ensuring that gains and losses from these contracts are treated consistently with securities futures contracts.

This section includes several diverse amendments: (1) 'Traded digital assets' are generally treated as 'marketable securities' for partnership distribution rules (Section 731(c)), meaning their distribution can trigger gain recognition. 'Specified stablecoins' are treated as 'money' for these rules. (2) 'Traded digital assets' are included in the definition of 'investment company' assets (Section 351(e)), impacting tax-free incorporation rules. (3) 'Specified stablecoin lending' is generally treated as 'indebtedness' (Section 1289), with payments treated as interest. (4) Digital assets are generally excluded from 'Section 197 intangibles' (Section 197(e)), impacting amortization. (5) 'Traded digital assets' are included in the definition of 'personal property' for straddle rules (Section 1092(d)). (6) Rules for backup withholding are provided for 'illiquid digital assets' paid for validation activities.

This section clarifies that income from 'digital asset validation supporting activities' (mining and staking) is treated as ordinary income. It also establishes source rules for this income: generally sourced in the United States for U.S. residents and outside the U.S. for nonresidents. Special rules apply for foreign and U.S. branches of businesses, allowing for income attribution based on the location of the qualified business unit or fixed place of business. This aims to provide clarity on how income from these activities is taxed and where it is considered to originate.

This section clarifies that an entity or arrangement will not fail to be treated as a trust for tax purposes solely because its trustee engages in staking digital assets held by the trust. This includes powers to retain or distribute staking rewards, determine which assets to stake, and ensure liquidity for redemptions. This provision aims to provide certainty for investment vehicles, such as digital asset exchange-traded funds (ETFs) or similar trusts, that engage in staking activities, preventing them from being reclassified as corporations for tax purposes. It explicitly excludes entities engaged in the active conduct of a validating trade or business.

This section amends broker reporting requirements (Section 6045) for digital assets. It clarifies that 'qualified U.S. dollar stablecoins' acquired at redemption value are generally exempt from certain reporting requirements, treating them more like cash. It also introduces special rules for digital assets used to pay de minimis fees (Section 1044), generally exempting these dispositions from reporting but requiring aggregate information. Furthermore, it provides special reporting rules for 'widely traded digital assets' subject to simplified accounting (Section 1051), requiring aggregate reporting of sales, acquisitions, and year-end holdings rather than individual transaction details.

This section mandates the establishment of a 'Digital Asset Voluntary Disclosure Program' by the Secretary of the Treasury within 12 months. This program will allow eligible taxpayers to come forward and correct past 'digital asset violations' (failures to comply with tax requirements related to digital assets). Taxpayers must file amended returns, pay deficiencies and interest, and a 'digital asset violation penalty.' In return, uncertified taxpayers receive protection from further penalties (Sections 6662, 6663) and criminal investigation (Sections 7201, 7203, 7206), while certified taxpayers (who attest to non-fraudulent/non-willful violations) receive protection from Section 6662 penalties.

This section mandates the Secretary of the Treasury to conduct a study on the feasibility of using new digital technologies (like zero-knowledge proofs, smart contracts, and blockchain) for improved tax compliance, efficiency, and data protection related to digital asset transactions. The study must investigate how these technologies can reduce compliance costs, replace traditional reporting, improve administration, and enhance data security. It also requires an evaluation of current withholding rules for digital assets and recommendations for legislative changes. A report to Congress is due by September 30, 2028.

This section adds a new subsection (p) to Section 7701 of the Internal Revenue Code, establishing comprehensive definitions for key terms related to digital assets. These include 'digital asset,' 'traded digital asset,' 'widely traded digital asset,' 'tokenized digital asset,' 'wrapped digital asset,' 'reference digital asset,' 'stablecoin' (including 'qualified U.S. dollar stablecoin'), 'digital asset transaction,' 'digital asset validation supporting activities,' 'validation,' 'staking,' and 'mining.' These definitions are foundational for the entire bill, determining the scope and application of its various tax reforms.

This section amends Section 165(d) of the Internal Revenue Code to reinstate prior rules for wagering losses. It specifies that losses from wagering transactions are allowed only to the extent of gains from such transactions, and crucially, that the term 'losses from wagering transactions' includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction. This reverses a change made by the Tax Cuts and Jobs Act of 2017, which had limited the deduction of expenses incurred in carrying on wagering transactions to the extent of gains.