Digital Asset Tax Certainty Act

The Digital Asset Tax Certainty Act aims to comprehensively reform the tax treatment of digital assets within the Internal Revenue Code of 1986. Its primary goals are to reduce tax complexities that hinder the use of digital assets in everyday transactions, align their tax treatment with comparable traditional financial assets, and ensure existing anti-abuse tax rules apply appropriately. The bill also seeks to clarify the tax implications of emerging activities like digital asset mining and staking, while establishing a framework for improved tax compliance. To facilitate the use of digital assets as a medium of exchange, the bill introduces a de minimis exception for small network and transaction fees, exempting gains or losses on digital assets used to pay fees up to $10. It also allows taxpayers to elect a simplified mark-to-market accounting method for widely traded digital assets, treating all gains and losses as short-term capital. Furthermore, specific rules are established for qualified U.S. dollar stablecoins , generally treating their value as their redemption value for tax purposes, with exceptions for professional traders. The legislation strives for parity between digital assets and traditional financial instruments. It extends non-recognition rules for securities lending to traded digital assets and permits dealers and traders in covered digital assets to elect mark-to-market accounting. Foreign persons trading digital assets will benefit from an expanded safe harbor from U.S. trade or business income, mirroring existing rules for securities and commodities. Additionally, charitable contributions of certain digital assets, like stablecoins and widely traded assets, are exempted from appraisal requirements, and a mechanism for non-recognition of gain on donated "conversion eligible digital assets" is introduced. To prevent tax avoidance, the bill applies existing anti-abuse provisions to digital assets. This includes extending wash sale rules and constructive sale rules to traded digital assets. It also modifies Subpart F rules to treat certain passive digital asset income of controlled foreign corporations as passive income. Special source rules are established for gains on traded digital assets for U.S. citizens residing in U.S. possessions, generally sourcing such gains to the U.S. unless specific conditions are met. The Act clarifies the tax treatment of digital asset mining and staking activities. Income derived from these digital asset validation supporting activities will be sourced based on the taxpayer's residence and will be treated as ordinary income. The bill also specifies that investment trusts engaged in digital asset staking will not lose their trust status solely due to these activities, provided they are not actively conducting a validation business. Regarding compliance, the bill updates broker reporting requirements for digital assets, particularly for stablecoins, de minimis fee transactions, and assets under simplified accounting. A new Digital Asset Voluntary Disclosure Program is established, offering reduced penalties for taxpayers who voluntarily remedy past digital asset tax violations. Finally, the Treasury Department is mandated to conduct a study on leveraging new digital technologies, such as zero-knowledge proofs and smart contracts, to enhance tax compliance, efficiency, and data protection for digital asset transactions.