April 19, 2022

On March 8, 2022, President Biden signed Executive Order 14067, “Ensuring Responsible Development of Digital Assets.” The order set national policy for digital assets emphasizing six priorities. Those priorities were consumer and investor protection, financial stability, illicit finance, U.S. leadership in the global financial system and economic competitiveness, financial inclusion, and responsible innovation. The signing received wide media coverage.

Later that month, the President submitted his FY 2023 budget to Congress which also received wide coverage. What did not get much notice was his proposed $10.9 billion (over 10 years) of new taxes on digital assets. What follows are excerpts from the Treasury Department’s “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals” concerning digital assets, followed by a discussion concerning the outlook for the proposals.

Modernize Rules Treating Loans of Securities as Tax-Free to Include Other Asset Classes and Address Income Inclusion

The Administration proposes to amend the securities loan nonrecognition rules to provide that they apply to loans of actively traded digital assets recorded on cryptographically secured distributed ledgers, provided that the loan has terms similar to those currently required for loans of securities. The proposal would require that income that would be taken into account by the lender if the lender had continued to hold the loaned asset must be taken into account by the lender in a manner that clearly reflects income. The proposal would be effective for taxable years beginning after December 31, 2022.

Financial Institutions and Digital Asset Brokers Reporting

The Foreign Account Tax Compliance Act (FATCA) provisions of the Internal Revenue Code generally require foreign financial institutions to report to the IRS comprehensive information about U.S. accounts. Such institutions that fail to comply may be subject to U.S. withholding tax on certain U.S. payments.

The Administration is proposing to require that certain financial institutions report the account balance (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) for all financial accounts maintained at a U.S. office and held by foreign persons. When reporting with respect to digital assets held by passive entities, the proposal would require brokers, such as U.S. digital exchanges, to report information relating to the substantial foreign owners of the passive entities. The proposed change would leave it to the discretion of the Secretary of the Treasury with respect to sales of digital assets with respect to customers, and in the case of certain passive entities, their substantial foreign owners. The Secretary would have further authority to promulgate regulations or other guidance as deemed necessary to carry out the purposes of the proposal.

The proposal would be effective after December 31, 2023.

Reporting of Foreign Digital Asset Accounts

 Section 6038D of the Internal Revenue Code requires any individual that holds an interest in one or more specified financial assets with an aggregate value of at least $50,000 during a taxable year to attach a statement with required information to the individual’s tax return by the due date.

A specified foreign financial asset means (a) a financial account maintained by a foreign financial institution as those terms are defined by section 1471 of the Code, and (b) certain specified foreign assets not held in a financial account maintained by such a financial institution.

The proposal would amend section 6038D(b) of the Code to require reporting with respect to a new third category of asset. The new third category would be any account that holds digital assets maintained by a foreign digital asset exchange or other foreign digital asset service provider. Reporting would be required only for taxpayers that hold an aggregate value of all three categories of assets in excess of $50,000 (or such higher dollar amount as the Secretary may prescribe). The proposal would be effective for returns required to be filed after December 31, 2022.

Amend the Mark-to-Market Rules for Dealers and Traders to Include Digital Assets

Section 475 of the Code requires dealers in securities to use the mark-to-market method of accounting for inventory and non-inventory securities held at year end. For this purpose, a security includes corporate stock, interests in widely held or publicly traded partnerships and trusts, debt instruments, and certain derivative financial instruments. Dealers in commodities and traders in securities or commodities may elect to use the mark-to-market method. A commodity means any commodity which is actively traded, any notional principal contract with respect to any such commodity, and certain other derivative financial instruments and hedges with respect to such commodities.

The proposal would add a third category of assets that may be marked-to-market at the election of a dealer or trader in those assets. Assets in the third category would be actively traded digital assets and derivatives on, or hedges of, those digital assets, under rules similar to those that apply to actively traded commodities. The Secretary of the Department of Treasury and her delegates would have authority to determine which digital assets are treated as actively traded. The determination of whether a digital asset is actively traded would take into account relevant facts and circumstances, which may include whether the asset is regularly bought and sold for U.S. dollars or other fiat currencies, the volume of trading of the asset on exchanges that have reliable valuations, and the availability of reliable price quotations.

A digital asset would not be treated as a security or commodity for purposes of the mark-to-market treatment only under the rules applicable to the new third category of assets. This would not affect treatment of a digital asset as a security or commodity for securities law or commodity law purposes. The proposal would be effective for taxable years beginning after December 31, 2022.


There has been a great deal of discussion in Congress about how to regulate cryptocurrency/digital assets. The media has pushed stories about how some individuals have lost their investments. But little on the revenue proposals. The crypto wash trading proposal that was in an earlier failed infrastructure bill and supposedly would have raised $16 billion over ten years was conspicuously absent from these proposals.

Congressional outlook for new revenue proposals is not positive. In a 50-50 Senate, Democrats need everyone of their members to support key legislation. Senator Kyrsten Sinema [D-AZ] has announced opposition to any new taxes on corporations. Senator Joe Manchin [D-WV] has expressed limited support for new business taxes. Republicans are expected to oppose all new tax legislation. The one possibility for new tax legislation depends on whether all Senate Democrats can agree on a scaled-down spending bill with limited revenue. However, time is running out. Stay tuned.