Members of Congress urge revisions to Treasury’s ‘unworkable’ digital asset tax rules

Several American lawmakers voiced their concerns to the U.S. Treasury regarding a proposed taxation scheme for digital assets in a Nov. 15 letter, citing its potential to stifle innovation and adversely affect the digital asset ecosystem.

The letter specifically concerns taxation rules advanced by the Treasury on Aug. 25. In today’s letter, lawmakers called the proposal “unworkable” and argued that the rules in their current form will prevent innovation and damage the digital asset ecosystem.

Lawmakers warned that the new rules would expand the term “broker” to apply to a wide variety of digital asset services, explicitly including DeFi services. They argued that this rule could apply even to DeFi platforms that do not ordinarily know the identity of their users and could require many digital asset services to file duplicate tax reports.

Lawmakers further expressed concerns that an overly broad or ill-defined “digital asset” term could include non-fungible tokens (NFTs) and payment stablecoins, potentially leading to regulatory complications. They argued that these assets should not be considered financial instruments or investment instruments, respectively.

Lawmakers also called the comment period and implementation deadline “unreasonably short.” They asked for the deadline to be extended to Dec. 31, 2023.

Bipartisan letter

The bipartisan letter was signed by nine different lawmakers on both sides of the political aisle. It was headed by Chairman of the House Financial Services Committee Patrick McHenry and Representative Ritchie Torres. Other lawmakers who signed the letter include Majority Whip Tom Emmer and Representatives Warren Davidson, Eric Swalwell, Wiley Nickel, French Hill, Byron Donalds, and Erin Houchin.

Despite recent developments, the debate surrounding digital asset taxation has been a contentious issue for some time. Many of the same lawmakers complained about the proposed tax rules in a January 2022 letter. McHenry also criticized the proposal this August, while others, such as the vocally anti-crypto Senator Elizabeth Warren, have called for faster implementation.

Incidentally, several of the above lawmakers signed another letter today asking the Biden administration to provide information on Hamas’ cryptocurrency funding. A House subcommittee also held a hearing on crypto’s role in crime on the same day.