White House Crypto Czar's Working Group Issues Digital Asset Policy Report

By: Juliya L. Ismailov

Last Thursday, July 30, the White House released a report titled “Strengthening American Leadership in Digital Financial Technology” (the “Report”) outlining proposed policy on the regulatory and tax treatment of digital asset transactions. This project arises from a January 2025 executive order creating a working group led by White House Artificial Intelligence and Crypto Czar David Sacks to create a legal framework for digital assets.

Currently there are tax regulations and related guidance in place addressing taxation and reporting of digital asset transactions by brokers and other intermediaries. Notice 2014-21 treats digital assets as property, as opposed to currency, with all the general federal income tax principles being applicable in the digital asset context. Other published guidance addresses specific types of digital asset interactions in the cryptocurrency ecosphere, such “forking,” “staking” and “mining,” in Rev. Rul. 2019-24, Rev. Rul. 2023-14, Rev. Rul. 2023-27 and IRS FAQs.

Below is a non-exhaustive list of tax issues addressed in Chapter VII of the Report on which taxpayers want guidance:

• Corporate Alternative Minimum Tax – This tax addresses differences between financial accounting (or book) income and taxable income by creating a minimum tax on book income. The administration views CAMT, if it is applicable to cryptocurrency, as potentially disincentivizing investment in this growing arena. Affected taxpayers have requested guidance to exclude from CAMT calculations unrealized gains and losses on cryptocurrency, or on investments generally.

• Investment Trusts – US investment funds holding exchange-traded products (ETPs) are often set up as investment trusts.  This type of trust is taxed as a “grantor trust,” which means its income and losses are passed through to the investors on pro rata basis. Taxpayers request guidance on whether an investment trust holding digital assets can qualify as a “grantor trust” for tax purposes.

• Wrapping – Taxpayers wish to know whether digital asset conversion from one blockchain to another, referred to as “wrapping,” represents a taxable transaction.

  
  

• Wash Sale Rule – If cryptocurrency is not characterized as a security (but rather is treated as a commodity), its sales could escape the “wash sale” rule. This means that gain and loss from trading similar types of cryptocurrency within 30 days could be offset against each other, while this is not the case with securities under the “wash sale” rule. Taxpayers would like clarity on the tax treatment of such short-term trading transactions with cryptocurrency.