In 2021, Section 80603 of the Infrastructure Investment and Jobs Act (IIJA, Pub. L. No. 117-58) defined the term “digital asset” in the Internal Revenue Code (IRC) for tax purposes. Several years before the codified tax definition, however, the Internal Revenue Service (IRS) had begun issuing guidance on how cryptocurrency should be treated for tax purposes. The IRS treats digital assets as property, which means that the tax treatment of digital assets is generally guided by the tax principles applicable to property transactions. These principles cover sales, exchanges, the timing of income recognition, substantiation, and valuation. Detailed judicial decisions and administrative guidance discussing the tax treatment of digital assets remain limited. Since the enactment of the IIJA, federal taxing authorities have concentrated on providing stakeholders with significant digital asset reporting compliance resources. Federal materials that focus on the tax consequences of digital asset transactions have largely addressed foundational concepts and been preliminary. When detailed tax guidance exists, it has generally been fact-specific and limited in scope. Judicial decisions concerning digital assets exhibit similar constraints, which might limit broader applications. The few detailed decisions and administrative materials on digital assets taxation often turn on a digital asset’s characteristics and the facts and circumstances surrounding a particular digital asset transaction. Courts and federal taxing authorities typically look for analogies among traditional asset classes and transactions to assess whether similar tax treatment is warranted. Courts have issued decisions and the IRS has issued guidance and rulings on the tax treatment of digital assets in specific contexts, such as hard forks, airdrops, mining, staking, and non-fungible tokens (NFTs). Federal lawmakers have proposed legislation aimed at clarifying the existing tax treatment of digital assets and altering the tax treatment of digital assets in certain types of transactions. As digital asset transactions continue to evolve, Congress may consider whether the existing statutory framework adequately captures revenue from digital asset transactions.
Full content not yet available.