Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields Act

“1046. Regulated payment stablecoin transactions

“(a) Sale of regulated payment stablecoin

“(1) In general—In the case of any sale or exchange of a regulated payment stablecoin, no gain or loss shall be recognized on such sale or exchange unless the taxpayer’s basis in such stablecoin is less than 99 percent of the redemption value of such stablecoin.

“(2) Redemption value—For purposes of this subsection, the term “redemption value” means the dollar amount for which the issuer is obligated to redeem such stablecoin.

“(b) Exchange of regulated payment stablecoin—In the case of any exchange of a regulated payment stablecoin, the acquirer’s basis in such stablecoin shall be deemed to be $1.

“(c) Transaction costs not included in basis—Amounts paid or incurred to facilitate the sale or exchange of a regulated payment stablecoin shall not be included in the calculation of the basis of such stablecoin.

“(d) Regulated payment stablecoin

“(1) In general—For purposes of this section, the term “regulated payment stablecoin” means a digital asset—

“(A) that is a payment stablecoin issued by a permitted payment stablecoin issuer,

“(B) with respect to which the issuer is obligated to convert, redeem, or repurchase the payment stablecoin for a fixed amount of United States dollars, and

“(C) which was acquired by the taxpayer for a price within 1 percent of $1.00.

“(2) Definitions—The terms “payment stablecoin” and “permitted payment stablecoin issuer” have the meaning given those terms, respectively, in section 2 of the GENIUS Act (12 U.S.C. 5901).

“(e) Dealers and traders—This section shall not apply to the sale or exchange of any regulated payment stablecoin by a taxpayer who is a dealer or trader in securities or commodities.

“(f) Regulations and guidance—The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out this section, including to prevent the avoidance of tax under this section.”

“(C) Traded digital assets

“(i) In general—Trading in traded digital assets through a resident broker, commission agent, custodian, or other independent agent.

“(ii) Trading for taxpayer’s own account—Trading in traded digital assets for the taxpayer’s own account, whether by the taxpayer or the taxpayer’s employees or through a resident broker, commission agent, custodian, digital asset exchange, or other agent, and whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. This clause shall not apply in the case of a dealer in digital assets.

“(iii) Limitation—This subparagraph shall apply only if the digital assets are of a kind customarily dealt in on a digital asset exchange.”

“(d) Substitute payments—Any payment made to a lender pursuant to an agreement described in subsection (b) in lieu of staking rewards, transaction fees, protocol distributions, or other amounts that would otherwise be payable with respect to a lent digital asset shall be included in the gross income of the lender in the same manner as if such amounts had been received directly by the lender.”

“(g) Specified asset—For purposes of this section—

“(1) In general—The term “specified asset” means—

“(A) any stock or security, and

“(B) any digital asset.

“(2) Contracts and options—Except as otherwise provided in regulations, the term “specified asset” shall include any contract or option to acquire or sell any specified asset described in paragraph (1).

“(h) Treatment of certain assets as substantially identical

“(1) In general—For purposes of determining whether an asset is substantially identical to any digital asset under this section, except to the extent provided by regulations prescribed by the Secretary—

“(A) the determination of whether an asset is substantially identical to any other asset shall be made on the basis of the economic exposure of the asset,

“(B) the mere fact that an asset may have different or no voting rights shall not prevent the asset from being substantially identical to any other asset,

“(C) the mere fact that an asset may trade on a different exchange (or no exchange) or a different blockchain (or no blockchain) shall not be taken into account, and

“(D) any asset that would not otherwise be treated as substantially identical to another asset shall not be so treated merely because the asset is based on the same or substantially similar protocol or computer code.

“(2) No inference—Nothing in this subsection shall create any inference as to whether any property is substantially identical to any property that is not a digital asset or as to whether any property was substantially identical to any digital asset before the effective date of this subsection.”

“(g) Election of mark To market for dealers and traders in actively-Traded digital assets

“(1) Dealer in digital assets—In the case of a dealer in actively-traded digital assets who elects the application of this subsection, this section shall apply to digital assets held by such dealer in the same manner as this section applies to securities held by a dealer in securities.

“(2) Trader in digital assets—In the case of a person who is engaged in a trade or business as a trader in actively traded digital assets, and who elects to have this paragraph apply to such trade or business as a trader in actively traded digital assets, subsection (f)(1) shall apply to digital assets held by the trader in connection with such trade or business in the same manner as such subsection applies to securities held by a trader in securities.

“(3) Limitation—An election under this section shall only apply to digital assets treated as actively traded (as defined by the Secretary).

“(4) Regulations and guidance—The Secretary shall issue such regulations and guidance as are necessary to carry out the provisions of this subsection.”

“W Digital assets acquired through validation activities

“1400W–1. Inclusion in gross income; expenses not capitalized

“In the case of the acquisition of any newly created digital asset by a taxpayer which is a specified taxpayer during any taxable year—

“(1) the fair market value of such asset shall be included in such taxpayer’s gross income as ordinary income for such taxable year, and

“(2) the taxpayer’s basis in such asset shall be increased by the amount included in gross income under paragraph (1).

“1400W–2. Election to defer inclusion of income and capitalize expenses

“(a) In general—In the case of a taxpayer which is a specified taxpayer for any taxable year to which an election under subsection (c) applies—

“(1) any newly created digital asset acquired by such taxpayer during such taxable year shall not be included in the taxpayer’s gross income,

“(2) specified transaction costs paid or incurred during such taxable year shall be chargeable to capital account and no deduction shall otherwise be allowed under this subtitle with respect to such costs, and

“(3) section 1400W–1 shall not apply.

“(b) Gain and loss on disposition during election period treated as ordinary—In the case of the disposition of any newly created digital asset to which subsection (a)(1) applies—

“(1) the excess (if any) of—

“(A) the amount realized (in the case of a sale or exchange) or the fair market value of such asset (in the case of any other disposition), over

“(B) the adjusted basis of such asset,

“(2) the excess (if any) of the amount described in paragraph (1)(B) over the amount described in paragraph (1)(A) shall be treated as loss which is ordinary loss.

“(c) Election

“(1) In general—An election under this section shall apply for the taxable year for which made and each of the four successive taxable years thereafter unless revoked by the taxpayer. Such election shall be made at such time and in such manner as the Secretary may provide.

“(2) Application to partnerships and S corporations—In the case of any partnership or S corporation, the election under this section shall be made at the partnership or S corporation level.

“(d) Gains and losses on disposition after election period—In the case of the sale, exchange, or other disposition of a digital asset with respect to which an election was in effect under subsection (b) for a prior taxable year, gains and losses with respect to such asset shall be treated as long-term capital gains or long-term capital losses, as the case may be.

“1400W–3. Definitions

“For purposes of this subchapter—

“(1) Newly created digital asset—The term “newly created digital asset” means any digital asset—

“(A) not previously owned by any person other than the validator, and

“(B) that is issued in connection with the validation of digital asset transactions.

“(2) Specified taxpayer—The term “specified taxpayer” means, with respect to the acquisition of any newly created digital asset that is issued in connection with the validation of digital asset transactions, a taxpayer who is the person who validated the digital asset transactions in connection with which such digital asset was issued.

“(3) Specified transaction costs—The term “specified transaction costs” means any amount paid or incurred in validating any digital asset transaction if, at the time such amount is paid or incurred there is a reasonable possibility that the taxpayer will acquire a newly created digital asset in connection with such validation, including amounts to—

“(A) claim or withdraw such asset from a staking pool, validator, or protocol,

“(B) execute a smart contract function to receive such asset, or

“(C) transfer such asset to a wallet or account controlled by the taxpayer.”

“(20) Infrequently traded digital assets

“(A) In general—In the case of a contribution of a digital asset which is not an actively traded digital asset the claimed value of which exceeds $500—

“(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgment with the taxpayer's return of tax which includes the deduction, and

“(ii) if the organization sells such asset, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.

“(B) Content of acknowledgment—An acknowledgment meets the requirements of this subparagraph if it includes the following information:

“(i) The name and taxpayer identification number of the donor.

“(ii) Details of the transfer of the digital asset contribution, including—

“(I) specific addresses involved in the contribution,

“(II) a description of the digital asset contributed, and

“(III) the date of the contribution.

“(iii) A certification that the digital asset was sold in an arm’s length transaction between unrelated parties.

“(iv) The amount of gross proceeds from the sale described in clause (iii).

“(v) A statement that the deductible amount may not exceed the amount the gross proceeds described in clause (iv).

“(vi) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the digital asset.

“(vii) A description and good faith estimate of the value of any goods or services referred to in clause (vi), or if such goods or services consist solely of intangible religious benefits (as defined in 170(f)(8)(B)), a statement to that effect.

“(C) Contemporaneous acknowledgement; Information to Secretary—Rules similar to the rules of subparagraphs (C)(i) and (D) of paragraph (12) shall apply.”

“(p) Tax treatment of certain digital asset activities

“(1) Passive staking not a trade or business

“(A) In general—Passive staking shall not constitute a trade or business, including for purposes of sections 512 and 864.

“(B) Passive staking—For purposes of this subsection—

“(i) In general—The term “passive staking” means staking by an individual or entity that is a passive validator.

“(ii) Passive validator—The term “passive validator” means, with respect to the acquisition of any newly created digital asset (as defined in section 1400W–3)—

“(I) the person who validated the digital asset transactions in connection with which such digital asset was issued, and

“(II) with respect to which there are no deductible business expenses relating to such validation activity.

“(2) Digital assets in investment trusts—For purposes of this title, in the case of a digital asset investment trust formed to hold digital assets—

“(A) any power held by the trustee to stake or unstake digital assets, whether directly or through delegation to another party, and to perform any related acts to exercise such power to stake, including the retention of staking rewards, shall not be treated as a power under such trust agreement to vary the investment of the certificate holders of such trust and shall not otherwise disqualify an entity from characterization as an investment trust that is not classified as a business entity under this section,

“(B) discretionary powers held by a trustee to use other measures, including a borrowing facility, to manage the trust’s potential need for assets available to satisfy redemptions shall not be treated as a power under the applicable trust agreement to vary the investment of the certificate holders of such trust, and

“(C) discretionary powers held by a trustee to act in response to changes to technology supporting the digital assets held by the trust, including with regard to staking, shall not be treated as a power under the applicable trust agreement to vary the investment of the certificate holders of such trust.”

“(q) Definitions related to digital assets—For purposes of this title—

“(1) Digital asset—The term “digital asset” means a digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.

“(2) Digital asset exchange—The term digital asset exchange means a platform which facilitates the transfer of digital assets by taking custody of, or exercising control over, such assets on behalf of users.

“(3) Actively traded digital asset

“(A) In general—The term “actively traded digital asset” means, with respect to any taxpayer for any taxable year, any digital asset—

“(i) which is fungible,

“(ii) with a minimum trading volume of $50,000,000 for the two calendar years immediately preceding the sale or exchange of such asset,

“(iii) with a minimum yearly market capitalization of $10,000,000,000 for the three calendar years immediately preceding the sale or exchange of such asset, and

“(iv) with respect to which the taxpayer and the related parties of the taxpayer hold no more than 5 percent by value or units of such asset.

“(B) Inflation adjustment—In the case of any calendar year after 2025, each of the dollar amounts in subparagraph (A) shall be increased by an amount equal to—

“(i) such amount, multiplied by

“(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting “calendar year 2024” for “calendar year 2016” in subparagraph (A)(ii) thereof.

“(4) Eligible digital asset—The term “eligible digital asset” means a digital asset that—

“(A) is fungible,

“(B) is of a type for which a market price is readily ascertainable based on publicly available quotations on a digital asset exchange,

“(C) does not represent or confer any ownership interest, equity interest, debt obligation, or other financial or property right in any entity, asset, commodity, or enterprise, and

“(D) is designed and functions as a medium of exchange, store of value, or unit of account, and is recorded and transferred through distributed ledger or blockchain technology.

“(5) Traded digital asset—The term traded digital asset means a digital representation of value that—

“(A) is designed and functions as a medium of exchange, store of value, or unit of account,

“(B) is recorded and transferred through distributed ledger or blockchain technology,

“(C) does not represent or confer any ownership interest, equity interest, debt obligation, or other financial or property right in any entity, asset, commodity, or enterprise, and

“(D) does not derive its value from, or represent a claim on, any fiat currency, commodity, security, or other financial instrument.

“(6) Validation activity—The term “validation activity” means staking, mining, or similar activities in support of the validation of digital asset transactions.

“(7) Mining—The term “mining”, when used in connection with a digital asset, means—

“(A) performing computations, or making available computing power, in support of the validation of digital asset transactions, and

“(B) except as otherwise provided by the Secretary, any substantially similar activity.

“(8) Staking—The term “staking”, when used in connection with a digital asset, means—

“(A) making such asset available in support of the validation of digital asset transactions by pledging, deploying, immobilizing, or locking to support validation of transactions on a cryptographically secured distributed ledger, or

“(B) except as otherwise provided by the Secretary, any substantially similar activity.”