The House Ways and Means Committee held its first digital asset tax hearing in years, debating seven Republican-led bills on crypto taxation, but the session revealed as many fault lines as it did solutions.
The House Ways and Means Committee convened on Tuesday afternoon for the first legislative hearing on digital asset taxation in years.
For hours, lawmakers questioned witnesses on where the current tax framework falls short, which of the seven Republican-led bills could fix it, and whether Congress itself is ready to act. Expert testimony came from the following:
- Sarah Riley, Vice President and Senior Tax Counsel at Fidelity Investments
- Lawrence Zlatkin, Vice President of Tax at Coinbase
- Jason Salmansado, Director of Policy at Coin Center
- Mike Kaercher, Deputy Director at the Tax Law Center at NYU Law
“The digital asset market has grown rapidly over the last several years, and we are at a crucial moment where tax clarity is needed to ensure that the United States remains the crypto capital of the world…However, due to confusion, ambiguity, and lack of clarity, as highlighted today, some digital asset owners may have underpaid taxes,” Congresswoman Carol Miller said during the meeting.
The broad consensus that emerged was uncomfortable: the system is broken, the need for clarity is urgent, and Capitol Hill is not yet equipped to deliver it.
Cryptocurrency is treated as property
So far, the Internal Revenue Service (IRS) in the United States has treated cryptocurrency as property, putting digital assets into a broader category with stocks, bonds, and real estate, rather than cash. This also means that most trading activity is governed by capital gains rules.
However, a decade later, the gaps are starting to show.
“Today, millions of Americans own or use digital assets. Yet, much of the tax code still treats this technology as though it were a niche experiment rather than a growing part of the financial system. The result has been confusion for taxpayers, compliance challenges for businesses, and unnecessary burdens for the IRS,” Coinbase’s Zlatkin said during the hearing.
The property classification creates real friction at the simplest level of crypto use. Every time a holder spends, trades, or otherwise disposes of a digital asset, they technically trigger a taxable event and must calculate any gain or loss against their original cost basis.
While that works tolerably well for someone buying and holding Bitcoin (BTC), the system starts to break down once someone is paying network fees, receiving staking rewards automatically generated by a protocol, or using a stablecoin to buy a cup of coffee.
“31% of crypto owners would like to buy a cup of coffee at the local shop. Yet each $5 cup of coffee bought with a digital asset generates two new pieces of tax paperwork. As a result, the IRS gets hundreds of millions of such tax forms each year that do little more than burden taxpayers,” Chairman Jason Smith noted.
Seven bills, multiple fault lines
The package of bills under consideration addresses three broad categories:
- Clarity on issues unique to cryptocurrencies
- Parity with traditional finance
- Compliance guardrails
Representative Yakym’s bill, for example, would exempt network fees under $10 from taxable event treatment and offer a simplified annual accounting method for frequent traders. A separate bill from Representative Kerry would treat mining and staking rewards as ordinary income on receipt, while also offering an election to defer recognition until the assets are sold.
On parity, bills from Representatives Kustoff and Kelly would extend securities lending safe harbors, mark-to-market accounting, and charitable deduction treatment to digital assets on equal footing with traditional financial instruments.
“We’ve argued very strenuously for parity with the rest of financial services…This industry is $2 trillion, and we need rules of the road, we need some clarity associated with that,” Coinbase’s Zlatkin said.
Legislation from Representative Arrington would extend wash sale and constructive sale anti-abuse rules to digital assets, a provision that drew rare cross-aisle support. A separate bill from Representative Bean would create a one-time voluntary disclosure program allowing taxpayers to come into compliance for past crypto tax filings with reduced penalties and no elimination of the underlying tax owed.
NYU Law’s Kaercher warned that while some bills improve the framework, others risk creating unintended subsidies. On the deferral election for mining and staking rewards specifically, he was said:
“Despite some thoughtful guardrails in the bill, it may be possible for taxpayers to permanently escape tax by earning rewards through certain business structures. This would convert an interest-free loan from the government into a loan that never has to be paid back.”
Is Congress actually ready?
The most striking exchange of the afternoon came when representatives asked if Congress is actually prepared to pass crypto tax legislation.
Kaercher noted that it feels as if the government is taking two “incredibly complicated topics and kind of smooshing them together.”
House Social Security Subcommittee Ranking Member John Larson noted the industry is feeling a “sense of urgency,” but there is also a sense of whether politicians are acting “too quick without knowing what [they are] doing.”
“I think the original question was a great question: Is Congress prepared? And the answer is probably not yet. Not yet,” Representative Kevin Hern added.
A markup is expected in the coming weeks. Whether the bills that emerge reflect the caution the hearing’s more skeptical voices called for, or the urgency its industry witnesses demanded, remains the central unresolved question.
