Digital Asset Tax Certainty Act

1051. Election to apply simplified accounting for gain and loss on widely traded digital assets

(a) In general. In the case of any designated type of digital asset with respect to any taxpayer for any taxable year—

(1) such taxpayer shall recognize gain on such designated type of digital asset for such taxable year equal to the excess (if any) of—

(A) the sum of—

(i) the aggregate amount realized by the taxpayer on sales or exchanges (including nonrecognition transactions) of widely traded digital assets of such designated type during such taxable year,

(ii) in the case of dispositions (including nonrecognition transactions), other than sales or exchanges described in clause (i), of widely traded digital assets of such designated type, the fair market value of such widely traded digital assets (determined as of the time of such dispositions), and

(iii) the fair market value of widely traded digital assets of such designated type held by such taxpayer as of the close of the taxable year, over

(B) the sum of—

(i) the fair market value of consideration provided by the taxpayer for the acquisition of widely traded digital assets of such designated type during the taxable year (other than any portion of such acquisition to which clause (iii) applies),

(ii) in the case of any disposition described in subparagraph (A)(ii), any amounts which would have reduced the amount realized by the taxpayer on such disposition if such disposition had been a sale or exchange,

(iii) in the case of the acquisition of widely traded digital assets of such designated type during the taxable year the basis of which in the hands of the taxpayer is determined by reference to the basis of such assets in the hands of the transferor, the basis of such assets in the hands of the taxpayer immediately after such acquisition,

(iv) in the case of any adjustment to the basis of a widely traded digital asset of such designated type (including adjustments under sections 734(b) and 743(b)), the net dollar amount (positive or negative) of any adjustment to basis of such widely traded digital asset, and

(v) the fair market value of widely traded digital assets of such designated type held by such taxpayer as of the close of the preceding taxable year,

(2) such taxpayer shall recognize loss on such designated type of digital asset for such taxable year equal to the excess (if any) of—

(A) the amount described in paragraph (1)(B), over

(B) the amount described in paragraph (1)(A), and

(3) except as provided in paragraphs (1) and (2), such taxpayer shall not recognize any gain or loss on the disposition of widely traded digital assets of such designated type.

(b) Designated type of digital asset. For purposes of this section—

(1) In general. The term designated type of digital asset means, with respect to any taxpayer for any taxable year, any type of widely traded digital asset (other than any qualified U.S. dollar stablecoin) with respect to which such taxpayer elects the application of this section for such taxable year.

(2) Type of widely traded digital asset. Widely traded digital assets shall be treated as being of the same type if, and only if—

(A) such assets are fungible, or

(B) such assets are determined under rules provided by the Secretary to have values that are directly linked or highly correlated.

(3) Pool token assets

(A) In general. For purposes of this section, qualified pool token assets shall be treated as widely traded digital assets, but shall be treated as widely traded digital assets with respect to any taxpayer if, and only if—

(i) not more than 10 percent of such tokens are owned, directly or indirectly, by the taxpayer or any person described with respect to the taxpayer under section 267(b) (applied without regard to section 267(c)(3)) or section 707(b)(1), and

(ii) the taxpayer and such persons do not have control or effective management of the composition of the assets to which the value of such tokens is attributable, including in a manner similar to a manager, sponsor, director, shareholder, general partner, commonly controlled affiliate, or other similar role.

(B) Qualified pool token asset. For purposes of this subsection, the term qualified pool token asset means any type of digital asset (determined under paragraph (2) by substituting digital assets for widely traded digital assets) for any taxable year if—

(i) at substantially all times during the calendar year which ends in or with the taxable year preceding such taxable year—

(I) substantially all of the value of such type of digital asset is attributable to widely traded digital assets (determined after the application of subparagraph (A)), and

(II) such type of digital asset is redeemable on demand for a proportionate share of the assets to which the value of such digital asset is attributable, and

(ii) the Secretary has determined that allowing such type of digital asset to be treated as a widely traded digital asset for purposes of this section is consistent with efficient tax administration and not subject to abuse.

(C) Prevention of double counting. In the case of any designated type of qualified pool token assets with respect to any taxpayer, such taxpayer shall not recognize gain or loss with respect to the particular assets to which the value of such designated type of qualified pool token assets is attributable.

(c) Gain or loss treated as short-term. Any gain or loss determined under subsection (a) shall be treated as short-term capital gain or short-term capital loss, respectively.

(d) Treatment of lending transactions

(1) Certain lending agreements. In the case of any transfer of widely traded digital assets to which section 1058(a) applies, such assets shall be treated for purposes of this section as continuing to be held by the transferor.

(2) Other lending transactions. In the case of any loan of widely traded digital assets which is not described in paragraph (1), except as otherwise provided by the Secretary, such assets shall be treated for purposes of this section as continuing to be held by the lender.

(e) Election

(1) Application of election

(A) In general. An election under this section with respect to any designated type of digital asset shall apply to the first taxable year which begins after the date on which the taxpayer makes such election and to each taxable year thereafter unless revoked as provided in paragraph (5).

(B) Application to current taxable year. If the taxpayer has not held any unit of a designated type of digital asset at any time during the 2-year period ending on the date on which the taxpayer makes the election described in subparagraph (A) with respect to such designated type of digital asset, such taxpayer may elect to apply subparagraph (A) by substituting the taxable year in which for the first taxable year which begins after the date on which.

(2) 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.

(3) Exclusion of dealers eligible to make mark-to-market election. A dealer that is eligible to make an election under section 475(g) with respect to any taxable year may not make an election under this section with respect to such taxable year.

(4) Exclusion of traders with a mark-to-market election in effect. A trader which has an election in effect under section 475(f)(3) with respect to any taxable year may not make an election under this section with respect to such taxable year.

(5) Revocation

(A) In general. A taxpayer may revoke an election under this section with respect to a taxable year which—

(i) has not begun as of the date on which such taxpayer requests such revocation, and

(ii) is not one of the first 5 taxable years to which such election applies.

(B) Deemed revocation. In the case of any designated type of digital asset which has ceased to be a widely traded digital asset, the election under this section with respect to such designated type shall be treated as revoked with respect to the first taxable year beginning after the date on which such designated type ceases to be a widely traded digital asset.

(C) 5-year waiting period. In the case of any revocation under this paragraph with respect to any designated type of digital asset, the taxpayer may not make an election under this section with respect to such designated type if such election would apply to any of the first 5 taxable years to which such revocation applies.

(D) Special rule for traders making mark-to-market election. If a taxpayer has in effect one or more elections under this section and such taxpayer makes the election under section 475(f)(3) with respect to any taxable year, the taxpayer shall (notwithstanding subparagraph (A)) be treated as revoking all such elections under this section beginning with such taxable year.

(f) Special rules related to election, revocation, and certain transfers

(1) Treatment of assets upon election. In the case of an election under this section, with respect to any designated type of digital asset, any widely traded digital assets of such designated type held by the taxpayer shall be treated as sold for fair market value on the last day of the taxable year preceding the first taxable year to which such election applies.

(2) Adjustments upon revocation. In the case of a revocation of an election under this section, proper adjustments shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under subsection (a).

(3) Certain transfers. In the case of any transfer of a widely traded digital asset which is a designated type of digital asset with respect to the transferor for the taxable year in which the transfer occurs, if the basis of such asset in the hands of the transferee is determined by reference to the basis of such asset in the hands of the transferor, the basis of such asset in the hands of the transferor (solely for purposes of determining the basis of such asset in the hands of the transferee) shall be treated as being equal to the fair market value of such asset at the time of such transfer.

(g) Special rules related to partnerships

(1) Sale or exchange of interest in partnership. The amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of such partner’s interest in the partnership attributable to a designated type of digital asset of the partnership shall be considered as an amount realized from the sale or exchange of a capital asset held for less than 1 year (under rules similar to the rules that apply for purposes of section 751(a)), by treating such designated type of digital asset in the same manner as an unrealized receivable.

(2) Certain distributions treated as sales or exchanges. In the case of any designated type of digital asset of a partnership, rules similar to the rules of section 751(b) shall apply by treating such designated type of digital asset in the same manner as an unrealized receivable and by treating any resulting gain or loss as short-term capital gain or short-term capital loss.

(3) Allocations of basis. For purposes of any allocation of basis to a designated type of digital asset of a partnership, rules similar to the rules for allocating basis to unrealized receivables (including sections 755 and 732(c)) shall apply except that proper adjustments shall be made to treat the designated type of digital asset as a capital asset held for less than 1 year.

(4) Certain contributions to partnership

(A) In general. Except to the extent otherwise provided by the Secretary, in the case of a contribution of any widely traded digital asset to a partnership by a partner in a contribution to which section 721 applies in a taxable year of the partnership for which such widely traded digital asset is a designated type of digital asset with respect to such partnership, any gain or loss recognized by the partnership under this section with respect to such designated type of widely traded digital asset shall be allocated to the contributing partner to the extent of the built-in gain or built-in loss (as the case may be) of the widely traded digital asset so contributed.

(B) Built-in gain. For purposes of this paragraph, the term built-in gain means the excess (if any) of the fair market value of the property at the time of contribution over the adjusted basis of such property (in the hands of the partner) at such time.

(C) Built-in loss. For purposes of this paragraph, the term built-in loss means the excess (if any) of the adjusted basis of the property (in the hands of the partner) at the time of contribution over the fair market value of such property at such time.

(h) Coordination with certain other provisions

(1) Determined without regard to wash and constructive sale rules. Sections 1091 and 1259 shall not apply to any transaction with respect to which gain or loss is not recognized by reason of subsection (a)(3).

(2) Coordination with related party transaction rules. Section 267 shall not apply with respect to a sale or exchange of property if the transferor has an election in effect under this section for the taxable year with respect to such property.

(i) Clarification that certain transfers are treated as dispositions. The following shall not fail to be treated as a disposition for purposes of this section:

(1) The distribution of any digital asset from a trust to a beneficiary.

(2) The transfer of any digital asset from a decedent (whether or not incident to the decedent’s death).

(j) Regulatory authority. The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or guidance relating to—

(1) the form and manner of making an election or revocation under this section,

(2) adjustments necessary by reason of such election or revocation (including adjustments to basis of widely traded digital assets of a designated type),

(3) adjustments to reporting requirements relating to widely traded digital assets with respect to which an election is in effect under this section,

(4) the treatment of a derivative of a designated type of digital asset, and

(5) preventing abuse of this section.

Sec. 1051. Election to apply simplified accounting for gain and loss on widely traded digital assets.