The US Senate Finance Committee asked the digital asset community how to tax it in an open letter

United States Senate Financial Services Committee Chair Ron Wyden and rating member Mike Crapo released an open letter to the digital asset community on July 11 request for input on digital asset taxation. Senators are looking for a solution to a very complex taxation problem, so much so that they are offered background reading from the Joint Committee on Taxation to prepare respondents.

The Internal Revenue Code of 1986 provides for “no direct classification for digital assets,” the senators said. They asked a large number of questions grouped into nine areas of study, explaining:

“In recent months, the Finance Committee initiated a bipartisan effort to identify key questions that lie at the intersection of digital assets and tax laws.”

The letter covers issues relating to fair value (mark-to-market) accounting, safe harbors of trade to encourage foreign investment, digital asset lending, laundering sales, constructive selling (which is closely related to short selling), staking and mining income, “non-functional currency,” reporting by foreign companies, and valuation and verification on exchanges. Questions often refer to specific sections of the tax code.

Related: US lawmaker blames crypto companies for ‘tax gap’ in letter to Treasury

Most of the Internal Revenue Service’s (IRS) crypto-related efforts thus far have been directed against criminal activity. It boasts earlier this year seized $10 billion in crypto all told in its law enforcement efforts.

You can bet on that @Consensys will offer our thoughts on crypto asset taxation. We are grateful to @RonWyden And @MikeCrapo to mingle with society.https://t.co/cAGcWd29tf

— Bill Hughes : wchughes.eth (@BillHughesDC) July 11, 2023

The IRS is becoming more proactive when it comes to income taxation as well. It claims in a recent case, for example, that it issued a call to crypto exchange Kraken in 2021 for user information on all transactions over $20,000. Kraken was ordered to provide the information by the District Court for the Northern District of California on June 30.

The Senate Committee will receive responses to the letter by September 8.

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