United States: Senate shows interest in crypto taxation

Tax news and developments

In brief

The United States Senate this past week solicited input from the public on the appropriate treatment of digital assets under US federal income tax law. Noting that uncertainty over the application of existing laws to transactions involving digital assets creates complex tax reporting issues for taxpayers, the Senate signaled that legislation may be required to provide adequate guidance to the industry and the public.


In depth

On 11 July 2023, Chairman Ron Wyden and Ranking Member Mike Crapo of the Senate Committee on Finance penned an open letter to members of the digital asset community and other interested parties requesting assistance in helping Congress understand how to address various tax issues related to the taxation of digital assets ("Senate Finance Letter"). This letter presented a series of questions addressing the tax challenges and opportunities presented by digital assets. These questions were based on a report prepared by the Joint Committee on Taxation in response to an earlier request from the Senate Finance Committee ("JCT Report").

The core issue raised by the JCT Report is the continued uncertainty over the tax characterization of digital assets. For example, the IRS concluded in Notice 2014-21 that "convertible virtual currency" should be treated as property, but not currency, for US federal income tax purposes. But various provisions of the Internal Revenue Code (IRC) afford different tax treatment to different types of property, and there is inadequate guidance on how digital assets should be characterized for purposes of these tax provisions. The JCT Report then identified a number of tax issues posed by digital assets, and the Senate Finance Letter then posed a series of questions related to the issues raised in the JCT Report.

One day after the Senate Finance Letter was published, Senators Cynthia Lummis and Kirsten Gillibrand introduced the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA). The bill, which is a revised version of a 2022 bipartisan bill sharing the same title (see S. 4356, 117th Cong.), is intended to “provide consumer protection and responsible financial innovation, to bring crypto assets within the regulatory perimeter,” and to achieve other related objectives. Sections 801-809 of the RFIA set forth a number of tax legislative proposals, seven of which overlap with the questions posed in the Senate Finance Letter.

What follows is a brief discussion of the issues that were identified in the JCT Report, raised as questions in the Senate Finance Letter, and/or addressed in legislative proposals in the RFIA.

Click here to access the full alert.


Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.