Senators Slam Treasury’s ’Absurd’ Crypto Tax Grab on Paper Gains

Washington’s latest crypto clash erupts as bipartisan lawmakers demand Treasury scrap its controversial unrealized gains tax—calling it a ’math-bending overreach’ that punishes hodlers for market swings they can’t control.

Behind the fury: A 2023 IRS rule treating unsold crypto positions as taxable income, forcing investors to cough up cash for gains they haven’t actually realized. Senators argue this unfairly targets decentralized assets unlike traditional investments.

The kicker? Treasury’s own economic models show the policy could actually reduce long-term tax revenue by chilling innovation. But when has government logic ever stopped a cash grab?

Current Tax Structure Could Stifle US Growth In Digital Asset Industry, Senators Warn

The tax is based on adjusted financial statement income (AFSI). This includes the fair value of digital assets. As a result, corporations with large digital asset holdings could be taxed on asset appreciation. This applies even if they haven’t sold the assets.

While this accounting method may apply to certain assets, it creates a challenge for companies in the digital asset sector.

The senators explained that the new rule could harm the US digital asset industry, as it creates an unfair tax burden on American companies.

Senators Push Treasury To Protect US Digital Asset Industry From Unfair Taxes

Under the new standard, entities holding appreciated digital assets WOULD pay taxes on unrealized gains. This could force companies to sell assets just to cover tax liabilities. As a result, their ability to grow and innovate would be limited.

Lummis and Moreno proposed that the Treasury use its regulatory authority to adjust the tax code to exclude unrealized digital asset gains from the AFSI calculation.

By doing so, the senators believe it will help ensure that US digital asset firms remain competitive. Foreign competitors are not subject to the same accounting rules. Additionally, this adjustment would allow US companies to retain their digital asset investments. They would no longer be forced to sell them just to pay taxes.

The proposed adjustments would align U.S. tax policy with the reality of digital asset valuation. Gains are often only realized upon sale. Without these adjustments, American firms may be forced to pay taxes on theoretical profits.