HOUSE WAYS & MEANS COMMITTEE
SUBCOMMITTEE ON OVERSIGHT
For questions on the note below, please contact the Delta Strategy Group team.
On July 16, the House Ways and Means Committee Subcommittee on Oversight held a hearing entitled “Making America the Crypto Capital of the World: Ensuring Digital Asset Policy Built for the 21st Century.” Witnesses in the hearing were:
- Summer Mersinger, CEO, Blockchain Association
- Sarah Reilly, Vice President and Senior Tax Counsel, Fidelity Investments
- Alison Mangiero, Head of Staking Policy and Industry Affairs, Crypto Council for Innovation
- Jason Somensatto, Director of Policy, Coin Center
- Corey Frayer, Director of Investor Protection, Consumer Federation of America
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements.
KEY TAKEAWAYS
- Subcommittee Chairman Schweikert (D-AZ) cited how the current Internal Revenue Service (IRS) code defines crypto as property, not currency, and discussed how it has created confusion for stakeholders and needs to be addressed through aligning the tax code with regulatory certainty. He emphasized that the Committee’s role is solely focused on creating a tax policy framework for digital assets.
- Chairman Jason Smith (R-MO) stated that Congress can help contribute to a healthy digital asset marketplace by ensuring that the laws and regulations are not overly burdensome for businesses, consumers, and taxpayers. He referenced that earlier this year, Congress approved a resolution, signed into law by President Trump, that overturned a Biden administration rule seeking to regulate decentralized finance (DeFi) brokers by imposing unworkable reporting requirements.
- In response to Committee Chairman Smith (R-MO) on how more tax certainty encourages growth and investment in the crypto economy, Mersinger highlighted how the current tax treatment of digital assets is complex, burdensome, and costly. She emphasized that the tax code should never be a barrier to innovation, calling for the modernization of the tax code to level the playing field for digital assets, reduce unnecessary burdens, and unlock innovation and growth in the U.S.
- Witnesses emphasized Congress must provide clear, sensible, and durable rules for the tax treatment of digital assets to secure U.S. leadership in innovation and foster greater tax compliance. They discussed how every digital asset transaction, regardless of size, is a taxable event and how blockchain activities like staking or token upgrades lack clear guidance, with the result of burdensome new reporting requirements and the offshoring of blockchain development. Comments reiterated that a functional digital economy requires a functional tax framework, warning that gaps in tax policy will continue to hinder compliance, investment, and enforcement if it remains uncertain, impractical, and misaligned with well-established principles of tax law.
- Mersinger, Mangiero, and Somensatto raised how a simple and reasonable de minimis exemption would help ameliorate the overwhelming compliance burden on taxpayers and businesses, and the tax administration burden on the IRS, by exempting small-dollar, personal transactions from taxation and reporting. Discussions called for the creation of a digital asset-specific safe harbor for foreign investors, similar to those for securities and commodities.
- Several of Mersinger’s recommendations, echoed by others, included: clarify the character, source, and timing of income for mining and staking rewards; clarify certain digital asset transactions are nonrecognition events, including “wrapping” and “unwrapping” a digital asset; adopt legislation to allow staking in U.S. digital asset investment structures (e.g., ETPs); extend the mark-to-market accounting method, currently used by commodities dealers and traders, to digital assets; establish a new safe harbor for foreign persons trading in digital assets; provide nonrecognition treatment for gains or losses upon digital asset transfers in connection with qualifying loan transactions; reconsider provisions of the Infrastructure Investment and Jobs Act, such as 6050I, that create barriers to the development of the digital asset industry; allow digital assets to be held as investment assets in retirement accounts; ensure that any updates to wash sales and constructive sales rules for digital assets only pass as part of a comprehensive digital asset tax package; and make research and development eligibility for blockchain development explicit.
- Reilly discussed how tax legislation is needed to both update the existing code sections that should address digital assets, such as those relating to securities lending, mark-to-market elections, and U.S. trading safe harbors, and to deal with novel concepts, such as staking and stablecoins.
- Somensatto raised that since blockchain transactions typically require users to pay small fees in the native asset of the network, the user must also calculate a capital gain or loss on that fee payment. He pointed out that Congress recognized a similar problem with foreign currency transactions and created a $200 de minimis exception, as he called for a comparable fix for cryptocurrency users, which would exclude gains on personal transactions below a certain dollar threshold.
- Somensatto called for Congress to help ensure block rewards are treated in line with existing tax principles applicable to newly created property and clarify that rewards only constitute income upon disposition, in addition to suggesting the executive branch promptly rescind its earlier guidance.
- Democrats, led by Subcommittee Ranking Member Sewell (D-AL), raised the lack of memecoins’ intrinsic value in criticisms of the President’s engagement with the industry through World Liberty Financial and subsequent conflicts of interest, calling for the application of guardrails to address such activities by an elected official. Sewell (D-AL) warned against innovation without accountability, agreeing with Frayer on the regulatory faults of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.