Tax Season Is Here — Crypto Tax Policy Needs a Reset

Alison Mangiero is a Senior Director at the Crypto Council of Innovation where she focuses on staking and tax policy along with industry affairs. She previously served as the Executive Director of the Proof of Stake Alliance (POSA) and began working in the crypto industry in 2018. 

The Crypto Council for Innovation (CCI) has worked with policymakers, our members and other key industry stakeholders to define a simple set of policy principles that should guide tax policy: clarity, parity in treatment, administrability, and competitiveness. Yet every tax season, millions of Americans who use digital assets face a problem: a patchwork of new and existing rules that make compliance harder than it should be. 

This filing season marks the first time many taxpayers will encounter new digital asset reporting requirements, including Form 1099-DA. Yet the underlying rules remain fragmented and difficult to apply in practice. In many cases, taxpayers are expected to track tiny gains across thousands of transactions, report income before they have the ability to sell assets, or interpret rules that were never contemplated for decentralized networks. According to a recent survey of crypto users, 74% understand that their activity is taxable, yet only 61% were aware of the new 2025 rules. Worse, just 49% understood that any sale of crypto is a taxable event. These are not unsophisticated market participants — 83% of crypto users hold investments outside of crypto, suggesting a high degree of familiarity with tax compliance needs.

The issue is not whether digital assets should be taxed. They already are. The real question is whether the rules are clear, administrable, and aligned with economic reality. They aren’t. The result is confusion for taxpayers and administrative complexity for the IRS. Not to mention worse tax compliance and less revenue for the Treasury. If policymakers want a tax system that people can realistically comply with — and that the government can effectively enforce — crypto tax policy needs targeted modernization.

As I emphasized in my testimony before the House Ways and Means Committee on digital asset taxation, these principles can support tax rules that are understandable for taxpayers, workable for the IRS, and consistent with how economic activity actually occurs. In several key areas, the current framework falls short. Fortunately, fixing it does not require rewriting the tax code. Targeted reforms could significantly improve compliance while supporting responsible growth in the United States.

First, Stablecoins

Stablecoins are increasingly becoming a layer of modern payment infrastructure. Stablecoins now power $9 trillion in annual transactions, approaching Visa and PayPal. Businesses use them to settle transactions more quickly, and individuals use them to move money globally at lower cost. Given the passage and enactment of the GENIUS Act, policymakers and regulators across Washington have actively considered how stablecoins could modernize the U.S. payment system.

Yet under current tax rules, even small fluctuations in value due to temporary market conditions can create taxable gain or loss when stablecoins are used in routine transactions. Users are effectively expected to track fractional penny differences across everyday activity.

That framework does not make sense for an instrument designed to maintain a stable value.

Payment stablecoins function as transactional instruments, not speculative assets. Congress should clarify that payment stablecoins as defined by GENIUS should not only be exempt from income tax, but also that transactions involving asset-backed stablecoins that meet statutory reserve requirements are exempt from reporting requirements. There should also be a fixed one-dollar valuation method for qualifying instruments that would codify the reality that these transactions generate no meaningful gain.

If policymakers want stablecoins to help modernize payments, tax policy should not create unnecessary friction.

Second, Congress should stop taxing phantom income from staking and mining. Both are necessary for the security and maintenance of the largest blockchain networks. Staking enables proof-of-stake networks to operate in a more stable, efficient, and secure manner by incentivizing ecosystem participants to validate and add new blocks to a blockchain; it secures billions of dollars for major firms active in the U.S. and underpins rapidly growing ecosystems. These networks are the key infrastructure on top of which assets like stablecoins operate. 

Current IRS guidance requires staking rewards to be recognized as ordinary income at fair market value at the moment when a taxpayer gains “dominion and control” of them, and not at the moment that value is realized. Staking rewards denominated in a network’s native token are illiquid, and may lose substantial value before they are sold. That creates income on paper before liquidity exists. In some cases, taxpayers may face a tax liability that bears no relation to the ultimate economic value that may be realized — making receipt-based taxation a poor proxy for actual economic gain.

Mining rewards — which help to secure proof-of-work networks such as Bitcoin — are also currently taxed as ordinary income at fair market value at the time they are created. While regulators and courts have affirmed Bitcoin’s status as a commodity, current IRS guidance taxes mining rewards both upon creation and upon sale. This disconnect imposes a form of double taxation not applied to other commodities, underscoring the need for updated Treasury and IRS guidance.

Timely Policy for Tax Timing

A better approach would be treating staking rewards like other created property, taxable at the time of sale rather than at the time of creation. This aligns taxation with economic reality and removes a structural disincentive to participate in network validation. It is also a view with growing Congressional support. Senator Todd Young, a Senate Finance Committee member, and a group of 19 House Republicans led by Representative Mike Carey, have each written separately to Treasury Secretary Bessent urging the IRS to reverse Revenue Ruling 2023-14. This position is consistent with the current administration’s own July 2025 recommendations on digital asset guidance. 

Congress should also clarify sourcing rules for staking income. Without clear guidance, rewards may be treated as sourced to the location of the infrastructure (“validator nodes”) supporting the network. That interpretation could trigger withholding obligations for foreign participants using U.S.-based validators.

The likely outcome would be predictable: infrastructure moves offshore. Ethereum, the largest proof of stake network, reports that approximately 60% of its staking and validation occurs in offshore infrastructure nodes. CCI research found, other proof-of-stake networks report this share is even higher for their operations, with many reporting that institutional staking customers demand infrastructure to be located outside of the U.S. in the face of tax uncertainty. At a time when policymakers are focused on strengthening U.S. leadership in digital assets, tax policy should not push critical network infrastructure abroad.

Third, lawmakers should adopt a reasonable de minimis exemption for small digital asset transactions including everyday payments and network transaction fees. As digital assets move into mainstream payment use cases, and small fees are necessary to power all blockchain-based transactions, consumers should not be required to calculate capital gains on every small purchase or transfer. Major exchanges have reported that a significant number of transactions are small; for example, Coinbase has shared that 4.3 million 1099-DAs will go to users with proceeds under $600, and almost 700,000 of the forms are issued for proceeds under $1.

The tax code already recognizes practical thresholds in other areas of financial activity. Requiring a taxpayer to calculate capital gains on a routine purchase or a fractional-cent gas fee generates compliance burdens with no commensurate revenue return. The IRS itself has effectively acknowledged this: it granted broad penalty relief to brokers on first-year 1099-DA filings because the volume of reportable micro-transactions exceeds what current matching systems can accurately process.

A modest annual de minimis threshold would reduce strain on both taxpayers and the federal government without meaningfully impacting federal revenue. This would make compliance easier and would also support the responsible use of digital assets.

Tax CLARITY

Together, these reforms reflect a straightforward principle: tax policy should be technologically neutral, clear, and administrable. It should increase compliance and neither impose unnecessary complexity simply because a technology is new, nor discourage the very activities that secure and support emerging financial infrastructure.

The lack of clarity today has real consequences. It limits market expansion. It encourages inconsistent reporting. It pushes businesses and developers toward jurisdictions that provide clearer rules. And it sends a signal that the United States has not yet fully realized its stated goal of being the crypto capital of the world. Congress has made bipartisan progress on digital asset legislation in recent years, including passing GENIUS to ensure there is clarity for stablecoins, to the active consideration of market structure reform. Tax policy should be part of that modernization effort.

Americans are ready to comply with the law. What they need are rules that reflect how digital assets actually function in practice. Modernizing crypto tax policy is about administrability and ensuring that the next generation of financial infrastructure is built, secured, and taxed in the United States.

Tax season is a reminder of our shared obligations. It should also be a reminder that clear rules are the foundation of an effective and competitive system.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

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