“Everything Right Is Wrong Again”: Trump 2.0 Presages Overhaul of Federal Income Tax Rules for Digital Assets

So, in the same manner that a marginal downtown nightlife scene has been reframed as the heart of modern music, let’s explore how the Cryptocurrency Report issued by the Trump administration in July 2025 envisions repositioning digital asset taxation. The Report provides a series of recommendations. It does not contain any legislative language. In many instances, it notes that guidance is needed without offering any recommendations as to the direction of such guidance.

Corporate Alternative Minimum Tax
Every so often, Congress becomes concerned that public corporations are showing robust earnings to investors but paltry earnings to the Internal Revenue Service (IRS).^[i] Given the substantial differences between book and tax income, the various efforts to tax such income were never successful. Nonetheless, the disparity has continued to annoy Congress and, beginning in 2023, the corporate alternative minimum tax (CAMT) became effective. The CAMT rules apply to corporations with adjusted financial statement income (AFSI) in excess of $1 billion for any three-year period and seek to tax the excess of book income over taxable income.

The President’s Crypto Working Group has endorsed the idea that AFSI should not include unrealized gains on cryptocurrencies (or “investment generally”). The IRS has issued Notice 2025-27 stating guidance will be issued shortly, without specifying whether crypto gains and losses can be excluded from AFSI.

Staking by Exchange-Traded Trusts
Exchange-traded trusts benefit from simplified Form 1099 tax reporting. If an exchange-traded trust engaged in business activities, however, it would be classified as a partnership (and not as a trust) and be required to file IRS Forms 1065 and provide Schedule K-1s to its investors. This reporting is considered burdensome. It is unclear whether an exchange-traded trust that engaged in staking—either proof of work (PoW) or proof of stake (PoS)—would be considered to be engaged in business activities. The Working Group, without taking a position on the issue, has recommended that the IRS address whether staking is a business activity.

Wrapping
A digital asset is “wrapped” when it is converted from its native blockchain to another blockchain. The wrapping immobilizes the cryptocurrency on its original blockchain. It is unclear whether wrapping and unwrapping are taxable transactions. The Working Group, without taking a position on the issue, has recommended that the IRS address whether wrapping and unwrapping is taxable.

Trading in Digital Assets
Although the IRS has categorized cryptocurrencies as property,^[ii]it is unclear whether digital assets are securities or commodities for tax purposes. This uncertainty creates tax questions about whether (i) trading in cryptocurrencies from within the U.S. is taxable to non-U.S. investors, i.e., eligible for the trading safe-harbors,^[iii](ii) crypto traders can elect to use mark-to-market accounting,^[iv](iii) publicly traded partnerships trading in cryptocurrencies will be taxable as corporations,^[v]and (iv) the straddle, constructive sale and wash sale rules apply to trading in cryptocurrencies.^[vi]The Working Group has urged Congress to create a new category of assets within the Internal Revenue Code for cryptocurrencies and then specifically address these issues, rather than shoe-horning cryptocurrency into security or commodity classification. The Working Group also has weighed in that the wash sale and constructive sale rules should apply to digital asset transactions regardless of how cryptocurrencies are classified. The Working Group further acknowledged that the wash sale rules do not apply to digital asset transactions under current law.

Stablecoins
Stablecoins are digital assets that seek to maintain a fixed value, usually by being tied to the U.S. dollar. For example, most stablecoins maintain a 1:1 ratio with the dollar, much like money market mutual funds. Although stablecoins function as currency, under current law, stablecoins are not treated as currency for federal income tax purposes.^[vii]The Working Group has three surprisingly helpful recommendations for taxing stablecoin transactions:

1. Stablecoins should be treated as indebtedness for federal income tax purposes.
2. The registration required rules (which prohibit bearer bonds from being issued by U.S. corporations) should not apply to stablecoins so that they can continue to trade anonymously without imposing an excise tax on stablecoin issuers.
3. The wash sale rules should not apply to stablecoin transactions until unrecognized losses exceed a threshold (to be determined later).

Crypto Lending Transactions
The market for the lending and borrowing of digital assets is robust. Most participants take the position that the lending of digital assets does not result in gain or loss. Code § 1058 provides explicit rules for when the lending of securities is not taxable. The Working Group recommends that Congress amend Code § 1058 to include actively traded cryptocurrencies and provide the IRS with the authority to determine when a cryptocurrency is actively traded. The Working Group acknowledged certain differences between security lending and crypto lending, but recommended that the tax exemption for the lending of cryptocurrencies be dependent on the loan having “terms similar to those currently required for loans of securities.”

Airdrops and Staking Rewards
The IRS has taken the position that staking rewards and airdrops result in current income, based upon the fair market value of the rewards and airdrops at the time that a taxpayer acquires dominion and control over the reward or airdrop.^[viii]This rule often results in hardship when the reward or airdrop loses a substantial portion of its value shortly after the taxpayer has received the cryptocurrency. The Working Group has recommended that staking rewards and airdrops that have de minimis value not be treated as taxable receipts.

PoW and PoS Income Recognition
The IRS has taken the position that successful digital asset mining (PoW) results in a taxable event when the mined coin is received by the miner. This conclusion seems at odds with tax rules governing gold mining and harvesting crops. Congress has considered several bills to conform digital asset mining to physical asset mining, but none have been enacted into law. The IRS has likewise taken the position that PoS rewards are taxable when received by the validator. The Working Group encourages the IRS to rethink its existing guidance.

Digital Asset Reporting
The Working Group pointed out that:

The global nature of the digital asset market offers opportunities for taxpayers to conceal assets and taxable income by using offshore digital asset exchanges and wallet providers. As a result, taxpayers who wish to hide their assets from the IRS in an offshore account may have an incentive to hold digital assets rather than traditional financial assets, which could distort financial markets and undermine the effectiveness of the reporting required by [tax rules requiring the reporting of financial accounts].

The Working Group recommended extending foreign financial account reporting to digital asset accounts maintained by U.S. persons outside of the United States.

IRS rules require the reporting of digital asset transactions on IRS Form 1099-DA. Under current law, the Form 1099-DA must be provided in paper format unless the taxpayer has consented to receive the reporting in electronic form. The Working Group recommended that the IRS promulgate regulations that would allow digital asset exchanges to provide electronic reporting through a less burdensome scheme.

Inter-Broker Reporting
Under current law, when a taxpayer transfers cryptocurrencies between wallets and digital brokers, the transferring broker is not required to provide basis information to the receiving broker. The Working Group was concerned that this lack of information reporting for inter-broker transfers could lead to incorrect information reporting to taxpayers. Accordingly, the Working Group has recommended that the IRS promulgate regulations that would require basis reporting on inter-broker transfers of cryptocurrencies.

Next Steps?
The current Administration has obtained extraordinary control over Federal agencies, including the IRS. This control makes it likely that to the extent that the Working Group recommendations can be implemented through IRS action, we can expect to see implementation of the recommendations. In addition, Congress is ramping up a second reconciliation bill for the fall of 2025. It is quite possible that the legislative recommendations could be implemented as part of that process. Same as it ever was.

^{[i] In 1986, Congress sought to tax business unreported profits or BURP. These rules were unworkable and were repealed in 1989. The BURP rules were followed by the adjusted current earnings rules, which also turned out to be unworkable and were repealed in 2017.}

^{[ii] Notice 2014-21}

^{[iii] See Section 864(b) of the Internal Revenue Code of 1986, as amended (the “Code”)}

^{[iv] See Code §§ 475(e) and (f)}

^{[v] See Code § 7704(d)(1)(G)}

^{[vi] See Code §§ 1091, 1092 and 1259}

^{[vii] Notice 2014-21}

^{[viii] Revenue Ruling 2023-14}