The Seward & Kissel Tax Group has collected some data and intelligence about what crypto tax changes we may see this year. President Trump aims to assess and revive cryptocurrency regulations via executive order, Congress looks to roll back digital asset transaction reporting requirements and also provide more flexible tax laws, and the IRS will continue to enforce compliance within existing U.S. federal income tax framework.
Legal Tokens
I. Presidential Action
President Trump signed an executive order on January 23, 2025, containing terms that demonstrate his intent to bolster cryptocurrency markets and engagement. The executive order creates a Working Group on Digital Assets, which will identify federal regulations and related rules affecting the crypto market(s) and recommend policy changes. We expect an expedited timeline from the Working Group to make these recommendations.
The executive order generally opposes the creation of a United States Central Bank Digital Currency or the promotion of foreign equivalents, signaling certain cryptocurrencies could be treated as currency for tax purposes. This reaches back to the classification of convertible virtual currency as a property in seminal tax IRS Notice 2014-21.
II. Congressional Action
Several members of the new Congress flag cryptocurrency tax rules as a priority as well. Senator Cruz, Lummis and others and Representative Carey propose revoking recent Treasury regulations that require decentralized finance (“DeFi”) platforms to provide Form 1099 reports as brokers do.
Further, Senators Lummis’s and Gillibrand’s Responsible Financial Innovation Act (proposed originally in 2022 and again in 2023) may get incorporated (likely only partially) into broader tax legislation this year. Provisions at the forefront of consideration right now are:
(a) extending the current safe harbor provisions under IRC Section 864(b) for securities and commodities trading activity by non-US persons operating in the United States to digital asset trading activities in certain circumstances,
(b) extending tax rules for securities lending crypto to crypto lending activities,
(c) excluding from gross income digital assets received through mining or staking activities until those assets are disposed of, and
(d) providing de minimis exclusions from gross income for certain crypto transactions. Such changes to cryptocurrency lending rules may help create a cryptocurrency repo market as well.
III. IRS Action
Despite the revamp noise coming from the executive and legislative branches, the IRS maintains its focus on enforcing currently active cryptocurrency tax reporting requirements. Its compliance campaign is generally aimed at identifying taxpayers who do not file and/or underreporting gains.
IRS enforcement efforts could push retail investors to institutional platforms, which are generally subject to Form 1099 reporting, to reduce retail investors’ risk of tax noncompliance.
The current versions of 1099 reporting rules for digital assets exclude foreign brokers because the Treasury anticipated joining the OECD Crypto Asset Framework. The current administration, however, is reluctant to sign onto this Framework. Consequentially, existing broker reporting rules will need to be extended to foreign brokers to establish an equal footing with domestic brokers.
Any other existing cryptocurrency tax regulatory projects appear to be on hold pending the above-discussed executive order, leaving taxpayers and professionals without clarity on their status or prioritization.
If you have additional questions, please contact a member of Seward & Kissel’s Blockchain or Tax Practice Groups.
