Digital Asset PARITY Act

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, shall be treated as gain which is ordinary income (and such gain shall be recognized notwithstanding any other provision of this subtitle), and

(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.

Subchapter W—Digital assets acquired through validation activities