The Crypto Tax Rules Proposed by Senators Lummis and Gillibrand

Nicholas Anthony

From codifying definitions to tackling the Infrastructure Investment and Jobs Act, the latest bill from Senators Cynthia Lummis (R‑WY) and Kirsten Gillibrand (D‑NY) has a full section dedicated to taxing cryptocurrency (see Figure 1). There is a lot of ground to cover here so let’s focus on some of the most important pieces.

Removing Capital Gains Taxes from Purchases (Sort of)

Capital gains taxes have been a long‐​standing issue for cryptocurrency users. If cryptocurrency is to be used as an alternative money, capital gains taxes pose a significant barrier to adoption since each transaction would have a greater tax burden in terms of both filing and monetary costs. Therefore, the Lummis‐​Gillibrand bill kicks things off with an amendment to 26 U.S.C. Part III that would exclude cryptocurrencies from capital gains taxation for “small” purchases. This de minimis exemption from capital gains taxes applies so long as the cryptocurrency in question is being used for the purchase of goods or services and the total value of the sale is under $200. This $200 threshold mirrors what is currently used to exempt gains on foreign currencies.

Concerningly, the bill proposes an aggregation rule so that multiple sales are included as one transaction. This step might make sense when thinking about counting a coffee, a sandwich, and a donut purchased in the same sitting as being one transaction. Yet it’s not clear what the limits would be to this aggregation as the bill later notes that even “a series of related transactions” should be treated as one sale. With that said, the senators did well to include an inflation adjustment. It would be much better to have no limit, but at least the adjustment would ensure the $200 (low as it is) does not decrease over time.

Fixing the Infrastructure Investment and Jobs Act

The next section tackles the infamous broker provision from the Infrastructure Investment and Jobs Act. Much like the original version of their bill from 2022, the Lummis‐​Gillibrand bill seeks to redefine the broker definition so that it doesn’t effectively capture everyone working in or around cryptocurrency. Separately, the bill would then repeal the arguably unconstitutional surveillance created by the Infrastructure Act in 26 U.S.C. Section 6050I. Although these portions of the Infrastructure Act are meant to go into effect at the end of 2023, the bill would delay the effective date to 2025 to give people (the IRS included) more time to figure out how even this limited version of the broker provision will work in practice.

Wash Sales and Unrealized Gains

The bill also addresses “wash sales”—an issue that some have speculated to be the “crypto tax loophole” that caught the attention of President Biden earlier this year. A wash sale is currently defined in the U.S. code as when someone sells a security at a loss to take a deduction on their taxes, but then immediately repurchase the same security. As it stands, wash sales with securities are not allowed, but it can be done with cryptocurrencies. Therefore, the bill would expand the current statutes covering securities to also cover cryptocurrencies.

Curiously, the bill then opens the door for a sort of “approved wash sale” on unrealized losses on the condition that it also apply to unrealized gains. The bill proposes a mark‐​to‐​market approach so that exchanges could reevaluate the fair market value of any cryptocurrency held as inventory and then pay or deduct taxes on any appreciation or loss without any sale taking place. Some argue that this process creates a more accurate picture of a balance sheet as markets ebb and flow. On the other hand, unrealized capital gains taxes are quite simply taxes on income that doesn’t yet exist. Perhaps that’s why the bill seems to take a nuanced stance by only amending the portion of existing law that pertains to exchanges electing to take on this practice. Either way, the bill bans traders from doing wash sales but then lets exchanges do them. Perhaps it’s time to rethink the capital gains approach entirely so that mitigating tax burdens no longer shapes investment strategies?

Mining and Staking

Carrying the theme of unrealized gains, the bill also addresses mining and staking. In short, the bill would make it so that any rewards from mining or staking are only considered taxable income when the holder actually sells the assets received for mining or staking. The question of taxing rewards has been a long standing issue, so the bill seeks to codify what people thought was decided in a 2021 court case: that mining and staking rewards are only taxable as income when they are sold.


The general theme seems to be that Senators Lummis and Gillibrand sought to compile everything from the debates over the last few years into a one‐​stop shop for cryptocurrency tax treatments. And they certainly managed to cover a wide range of issues. Given the complexity of the other sections of the bill, it may very well be the case that this section becomes a standalone bill in the future.

Are you curious about the other sections of the bill? See Jack Solowey and Jennifer Schulp’s commentary on the sections on market structure and exchanges and my own commentary on the section on illicit finance.

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