Key Takeaways:
- Proposed legislation could significantly alter the tax treatment of digital assets, including new rules for wash sales, constructive sales, and lending transactions.
- The PARITY Act introduces options for income deferral and mark-to-market elections, aiming to reduce compliance burdens for traders, miners, and stakers.
- Although still in draft form, bipartisan momentum is building and businesses should begin modeling the potential impact on investments and reporting strategies.
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The U.S. Congress is taking meaningful steps to clarify and modernize the tax treatment of digital assets. Two primary legislative efforts — the Digital Asset Market Clarity (CLARITY) Act and the proposed Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (PARITY) Act — are driving momentum toward long-awaited reform. These efforts represent the most comprehensive overhaul of digital asset taxation in years.
While both bills are still in flux, they signal that lawmakers are prioritizing updates that would significantly reshape how cryptocurrencies and related digital assets are treated under federal tax law.
What Businesses Need to Know
The PARITY Act, introduced by Rep. Max Miller (R-Ohio) and Rep. Steven Horsford (D-Nev.) in December 2025, builds upon earlier drafts and incorporates provisions from the Lummis bill and a White House report on digital asset policy. It includes tax treatment proposals for a wide range of digital asset activities, including:
- Expanding wash sale and constructive sale rules
- Allowing a mark-to-market election for traders and dealers
- Introducing exceptions for stablecoin transactions
- Offering deferral options for mining and staking rewards
- Proposing a de minimis exception for small transactions
- Extending securities lending rules to digital assets
These proposals are early stage and may evolve. However, businesses involved in digital asset transactions should be prepared for potential tax implications.
Key Legislative Provisions and Considerations
The following provisions highlight where lawmakers are seeking to close perceived gaps while also reducing administrative friction for compliant taxpayers:
Wash Sale Rules for Digital Assets
The PARITY Act would apply wash sale rules to digital assets, disallowing losses on sales where similar assets are reacquired within a 30-day window. The definition of digital assets would follow Section 6045 broker reporting rules.
Impact: The measure aligns with prior legislative proposals and is likely to be included in any final bill due to its revenue-raising potential. Businesses should evaluate existing positions and consider pre-enactment strategies to reset basis if this provision is adopted.
Constructive Sales
The current PARITY draft reserves space to apply constructive sale rules (Section 1259) to digital assets. The aim is to capture transactions that effectively eliminate both upside and downside exposure without formally selling the asset.
Impact: While details remain undefined, this provision is designed to prevent tax deferral through synthetic structures and may increase reporting complexity.
Mark-to-Market Election for Digital Asset Traders
A new election under Section 475 would allow traders and dealers to apply mark-to-market treatment to publicly traded digital assets. This means gains or losses would be recognized at year-end based on fair market value and treated as ordinary income.
Impact: Electing taxpayers could benefit from simplified reporting, though accurate valuation across platforms will be critical. This option could align tax reporting with financial statement treatment for some businesses.
Tax Deferral for Mining and Staking Rewards
The draft PARITY Act proposes an optional five-year deferral of income recognition for mining and staking rewards, with ordinary income treatment at the time of recognition. This differs from the Lummis bill, which proposes deferral until sale.
Impact: Although not yet finalized, this provision could offer near-term relief for participants in validation and consensus protocols. However, passive staking treatment and business classification will remain subject to case-by-case analysis.
Charitable Contributions of Digital Assets
A future provision would exempt highly liquid, widely traded digital assets from the current appraisal requirement for charitable deductions over $5,000. Details are still in development.
Impact: Businesses making philanthropic gifts of digital assets may benefit from simplified substantiation, though eligibility would depend on trading volume and asset type.
De Minimis Exception for Small Transactions
The PARITY Act contemplates excluding gain or loss on personal digital asset transactions under $200, mirroring rules for foreign currency. The Lummis bill proposes a $300 limit with an annual cap.
Impact: This rule could reduce compliance burdens for everyday transactions, but concerns about abuse have delayed consensus. A final rule may include strict anti-abuse measures and tracking requirements.
Stablecoin Transaction Exemption
A narrow exclusion from gain or loss is proposed for stablecoins that have traded within 1% of a $1.00 value for 95% of the prior 12 months. Additional restrictions apply to acquisition and sale price thresholds.
Impact: The exemption aims to remove friction in stablecoin usage, though disagreements among lawmakers remain. Businesses using stablecoins for payments or treasury management should monitor developments closely.
Lending of Digital Assets
The PARITY Act would apply securities lending rules (Section 1058) to digital assets, enabling tax-deferred treatment for qualifying loan transactions. The asset must be fungible and liquid, and the lender must retain both risk and opportunity for gain.
Impact: If enacted, this provision would clarify tax treatment for common crypto lending arrangements and could reduce compliance uncertainty.
Looking Ahead
Despite overlapping proposals and technical uncertainties, bipartisan consensus is forming around the need to modernize digital asset tax treatment. While much of the legislative language is still under review or incomplete, the key themes are clear: increasing revenue through stricter rules, simplifying reporting for compliant taxpayers, and reducing friction in everyday use of digital assets.
Middle-market companies involved in cryptocurrency, DeFi platforms, or tokenized transactions should evaluate how these proposed rules may impact investment, reporting, and compliance strategies.
Position Your Business for Success Amid Crypto Tax Changes
With deep experience advising on digital asset taxation, financial reporting, and compliance, MGO helps companies navigate shifting regulatory environments. Our professionals monitor legislative developments closely and provide actionable insights to help you adapt before rules take effect.
If your organization is preparing for changes in the digital asset space, contact MGO’s digital asset advisory team to discuss strategic planning, transaction modeling, and tax optimization.