PAR Act
- Sponsor
- Rep. Kustoff, David [R-TN-8]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jun 8, 2026
Bottom line
The PAR Act aims to provide much-needed tax clarity and consistency for digital assets by integrating them into existing tax frameworks, potentially fostering growth and investment in the digital asset market.
What it actually does
This bill amends the Internal Revenue Code of 1986 to provide clearer tax rules for digital assets, treating them similarly to securities and commodities in several key areas. It extends non-recognition rules for securities lending to digital assets, allows professional dealers and traders of widely traded digital assets to elect mark-to-market accounting, and creates a safe harbor for foreign persons trading digital assets in the U.S. to avoid being considered engaged in a U.S. trade or business. Additionally, it establishes comprehensive definitions for various types of digital assets, including 'traded digital assets' and 'qualified U.S. dollar stablecoins'.
Proponents argue
Proponents argue that the bill provides essential tax clarity and certainty for the rapidly evolving digital asset industry, which is currently operating under ambiguous guidance. They contend that by aligning the tax treatment of digital assets with traditional financial instruments like securities and commodities, the bill will reduce compliance burdens, encourage innovation, attract investment, and ensure the U.S. remains competitive in the global digital economy. The clear definitions and mark-to-market options are seen as crucial steps towards a mature and well-regulated digital asset market.
Opponents contend
Opponents might express concerns that the bill, while aiming for clarity, could inadvertently create new tax loopholes or provide undue advantages to professional digital asset traders and foreign investors. They may argue that the definitions for 'widely traded digital assets' could be too narrow or too broad, leading to unintended consequences or regulatory arbitrage. Critics might also suggest that granting broad regulatory authority to the Secretary of the Treasury for defining and adjusting requirements could lead to uncertainty or inconsistent application, potentially favoring certain market participants over others.
The bill is relatively short, making it accessible for a quick read, but its technical nature and reliance on existing tax code sections require careful consideration to fully grasp its implications.
Sec. 2
Digital Asset Lending Rules
This section amends Section 1058 of the Internal Revenue Code, which currently allows for certain securities lending transactions to occur without immediate recognition of gain or loss, provided specific conditions are met. The bill expands these rules to include "traded digital assets" alongside securities, meaning that lending and borrowing of these digital assets will be treated similarly for tax purposes. It also specifies that the transferor of traded digital assets must assume all obligations of ownership during the lending period, ensuring tax neutrality.
Supporters argue
Proponents argue that extending Section 1058 to digital assets provides much-needed tax certainty for a growing segment of the digital asset market. They contend it harmonizes the tax treatment of digital asset lending with traditional securities lending, preventing immediate taxable events that could hinder liquidity and market development. This clarity is crucial for institutional participation and the overall maturation of the digital asset ecosystem.
Critics contend
Opponents might argue that applying securities lending rules directly to digital assets without careful consideration of their unique characteristics could create unforeseen loopholes or tax advantages. They may express concern that the definition of 'traded digital assets' might be exploited, or that the assumption of obligations by the transferor might not fully capture all economic realities, potentially leading to unintended tax consequences or revenue loss.
Tradeoffs
The provision balances the desire for tax neutrality and market efficiency in digital asset lending with the need to prevent tax avoidance and ensure appropriate revenue collection in a novel asset class.
Sec. 3
Mark-to-Market Accounting for Digital Asset Dealers and Traders
This section allows professional dealers and traders of "covered digital assets" to elect mark-to-market accounting for tax purposes. This means they would recognize gains and losses on their digital asset holdings at the end of each taxable year, regardless of whether the assets have been sold. This aligns their tax treatment with how securities and commodities dealers and traders are currently taxed. 'Covered digital assets' include widely traded digital assets, related derivatives, and hedges. The election, once made, applies to all subsequent taxable years unless revoked with IRS consent, and includes a 4-year spread for adjustments during the transition.
Sec. 4
Digital Asset Trading Safe Harbor for Foreign Persons
This section extends the existing 'trading safe harbor' under Section 864(b)(2) of the Internal Revenue Code to include 'traded digital assets.' This means that foreign persons who trade traded digital assets for their own account, or through a U.S. resident broker or agent, will generally not be considered engaged in a U.S. trade or business. Consequently, capital gains from such trading would typically not be subject to U.S. income tax, encouraging foreign investment and liquidity in U.S. digital asset markets.
Sec. 5
Key Digital Asset Definitions
This section adds a new subsection to the Internal Revenue Code (Section 7701(p)) to define various terms related to digital assets. Key definitions include 'digital asset' (a digital representation of value on a cryptographically secured distributed ledger), 'traded digital asset' (fungible, readily quotable on an exchange, and not a tokenized digital asset unless it's a wrapped digital asset of a traded digital asset), and 'widely traded digital asset' (meeting specific market capitalization, ownership, and price discovery criteria). It also defines 'tokenized digital asset,' 'wrapped digital asset,' 'reference digital asset,' and 'qualified U.S. dollar stablecoin,' with provisions for the Secretary to prevent abuse and adjust requirements.
Grants the Secretary of the Treasury authority to provide alternative requirements for defining a 'widely traded digital asset' if market conditions change, including due to future Federal digital asset market structure legislation. This allows the Secretary to adjust criteria (like market capitalization or ownership limits) without new legislation.
Sec. 5(p)(3)(D)
Why it matters:This is a standard legislative practice to provide administrative flexibility in rapidly evolving areas. It avoids the need for Congress to pass new legislation every time market conditions or technology shifts, allowing for more agile regulatory responses.
Case for: Supporters would argue that this flexibility is essential for the IRS and Treasury to adapt tax rules to the fast-changing digital asset landscape. It ensures that the definition of 'widely traded' remains relevant and effective in identifying assets with reliable price discovery, even as the market matures or new legislation is enacted.
Case against: Critics might argue that granting such broad authority to the Secretary could lead to regulatory uncertainty, as the criteria for 'widely traded' assets could change at the discretion of the Treasury, potentially without extensive public input or congressional oversight. This could create an unpredictable environment for businesses and investors.
Estimated impact: This provision has a potentially significant, though unquantifiable, impact on the scope and application of mark-to-market accounting and other rules tied to 'widely traded digital assets,' affecting a large segment of the digital asset market.
Defines 'tokenized digital asset' as any digital asset (other than a qualified U.S. dollar stablecoin) where 'more than an insignificant portion of the value of such digital asset is related to anything other than the operation of the cryptographically secured distributed ledger on which such digital asset is recorded.' This effectively carves out most real-world asset-backed tokens from being classified as 'traded digital assets' unless they are 'wrapped digital assets' of other traded digital assets.
Sec. 5(p)(4)
Why it matters:This is a technical definition crucial for distinguishing between different types of digital assets for tax purposes. Its placement in the definitions section is standard, but its specific wording has significant implications for asset classification.
Case for: Proponents would argue that this definition is essential for accurately classifying digital assets for tax purposes, ensuring that assets representing real-world value (like tokenized real estate or commodities) are treated differently from purely native blockchain tokens. This prevents unintended tax consequences and maintains consistency with existing tax principles for tangible and intangible property.
Case against: Critics might argue that the phrase 'more than an insignificant portion of the value' is vague and could lead to uncertainty and disputes regarding the classification of various tokenized assets. They may also contend that this distinction could inadvertently stifle innovation in the tokenization of real-world assets by imposing a less favorable tax treatment compared to other digital assets.
Estimated impact: This definition has a potentially substantial impact on the tax treatment of a wide range of asset-backed tokens, affecting their liquidity and adoption. The scale is difficult to quantify without knowing the volume of such assets.
Grants the Secretary of the Treasury limited authority to issue regulations or guidance to treat 'qualified U.S. dollar stablecoins' as dollars and to treat 'other stablecoins' as currency if such treatment 'would increase Federal revenues.'
Sec. 5(p)(7)(D)
Why it matters:This is a significant grant of administrative power, strategically placed within the technical definitions. While providing flexibility, linking the treatment of 'other stablecoins' to revenue generation is a notable policy choice.
Case for: Proponents would argue that this authority is crucial for the Treasury to adapt to the evolving stablecoin market and ensure appropriate tax treatment. Treating qualified stablecoins as dollars simplifies transactions and reduces compliance burdens, while the revenue-maximizing directive for other stablecoins ensures the government doesn't lose out on potential tax income from new financial instruments.
Case against: Critics might argue that granting the Secretary the power to classify stablecoins as 'currency' solely based on whether it 'would increase Federal revenues' is an overly broad and potentially arbitrary delegation of authority. They may contend that such a directive could lead to inconsistent tax treatment, create uncertainty for stablecoin issuers and users, and potentially stifle innovation in the stablecoin market if tax classifications are driven primarily by revenue goals rather than economic substance.
Estimated impact: This provision has a potentially massive, though currently unquantifiable, impact on the tax treatment and market dynamics of all stablecoins. It could significantly influence their adoption and regulatory status, with implications for billions of dollars in transactions.