Top Senate Taxwriters Seek Input on Digital Asset Tax Rules

On July 11, Senate Finance Committee Chair Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) published a letter soliciting input on a wide array of questions about how digital assets should be taxed. 

For donors and nonprofits accepting gifts in crypto, the letter signals that key tax writers are open to reevaluating whether barriers to donating crypto assets, like the appraisal requirement for larger digital asset gifts, are appropriate. The letter requests opinions on whether policymakers should modify rules mandating that donors who give greater than $5,000 in crypto obtain a valuation of their digital asset gift from a qualified appraiser to claim a charitable deduction. Currently, traditional financial instruments like stocks and bonds are exempt from this requirement, and eliminating this disincentive to give would reduce costs for many crypto donors, with some donor savings potentially being passed on to nonprofits. 

Additionally, the letter seeks input on whether small crypto transactions should be exempt from taxation. Lawmakers have proposed making small crypto transactions tax-exempt in recent years to allow investors to make small purchases with digital assets without being subject to a capital gains tax, allowing crypto assets to be more readily used as a cash substitute. However, setting the tax-exempt threshold too high could make gifting crypto less attractive since, over multiple transactions, potential donors could avoid thousands of dollars in capital gains taxes if they use their crypto assets to purchase everyday goods. The recent uptick in digital asset giving is likely due in part to donors gifting the assets in their portfolios that have appreciated the most, and allowing investors to avoid these taxes would likely put downward pressure on the charitable giving of crypto.

The letter suggests Senate Finance Committee leaders are working to get their arms around the ins and outs of how crypto is taxed, potentially before putting policy proposals together that would reform digital asset tax rules. While this a first step in what could turn out to be a drawn-out process, a legislative vehicle for tax proposals could still come together later this year, and the Finance Committee could attempt to tack on narrow changes to the tax rules for crypto if responses to the letter indicate a broad consensus exists on how to proceed. 

The letter notes that the pair of key tax writers is accepting feedback from the public on a rolling basis until September 8. 

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