8 CONGRESS REPS SEND LETTER TO IRS URGING FURTHER CRYPTO TAX CLARITY

The world of cryptocurrency continues to evolve at breakneck speed, leaving regulators scrambling to keep up.One of the most pressing issues is the lack of clear guidance on how digital assets should be taxed. Notice PDF informs brokers that until the U.S. Treasury Department and the IRS issue further guidance, brokers will not have to file information returns or furnish payee statements on digital asset sales and exchanges for the following six types of transactions:This ambiguity not only creates headaches for taxpayers but also hinders the broader adoption of crypto.Recognizing this critical need, eight members of the United States Congress have taken a proactive step by sending a letter to the Internal Revenue Service (IRS), urging the agency to provide additional clarity on cryptocurrency tax laws.This isn't the first time Congress has addressed this issue, but it underscores the growing concern about the current state of affairs. Despite the continued call for action to issue clarifying 501(r) guidance and strengthen the community benefit standard, it is unlikely the IRS will prioritize such additional guidance over the priorities identified in its Tax-Exempt and Government Entities Fiscal Year 2025 Program Letter issued in October 2025 (see Tax Alert ) and its Accomplishments Letter released in January 2025The specific focus of their request centers around the tax implications of token airdrops and blockchain network forks, two areas that remain particularly murky for crypto investors. In October 2025, Senators Warren, Sheldon Whitehouse (D-R.I.), Chris Van Hollen (D-Md.), and Bernie Sanders (I-Vt.) sent a letter to Secretary Janet Yellen and Internal Revenue Service (IRS) Commissioner Daniel Werfel, urging them to proactively use the Treasury Department s rulemaking authority to close tax loopholes that create inconsistency and unfairness in the tax system and threatenBut why is this clarity so important, and what specific issues are Congress trying to resolve? Congress has now sent four separate letters to the IRS about this issue. In a statement, Rep. Emmer s office said: While initial guidance was provided, ambiguity around basic questions of how taxpayers should calculate and track the basis of their virtual currency holdings is unacceptable.Let's delve deeper into this crucial development and explore the potential impact on the future of crypto taxation.

The Core Concerns: Airdrops and Blockchain Forks

The Congressional letter highlights two specific areas of cryptocurrency taxation that desperately need clarification: airdrops and blockchain forks.These events create significant confusion for taxpayers trying to determine the correct cost basis and tax implications of their digital assets.

Understanding Airdrops

An airdrop is the distribution of a cryptocurrency token or coin to numerous wallet addresses.Airdrops are primarily implemented as a way of gaining attention and new followers, resulting in a larger user-base and a wider disbursement of coin.Essentially, it's like receiving free samples, but in the digital currency realm.The question is, when do these free tokens become taxable income?

Currently, the IRS's guidance on airdrops is limited, leading to uncertainty about when the income is realized and how it should be valued.For example:

• Is the airdrop taxable upon receipt? If so, how is the fair market value determined at that moment?
• What if the tokens received in the airdrop have little to no value initially? Do taxpayers still need to report them as income?
• How does the cost basis work for tokens received via airdrop? Is it zero, or is it the fair market value at the time of receipt?

Without clear answers to these questions, taxpayers are left guessing, increasing the risk of errors and potential penalties.

Navigating Blockchain Forks

A blockchain fork occurs when a blockchain diverges into two potential paths forward.This can happen for various reasons, such as disagreements about the rules of the blockchain or the implementation of new features. A version of the question appears on these tax returns: Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; Form 1040, Individual Income Tax Return; Form SR, U.S. Tax Return for Seniors; Form NR, U.S. Nonresident Alien Income Tax Return; Form 1041, U.S. Income Tax Return for Estates and TrustsAs a result of a fork, holders of the original cryptocurrency may receive an equivalent amount of the new cryptocurrency.

Similar to airdrops, the tax implications of blockchain forks are unclear.Key questions include:

• Is the receipt of the new cryptocurrency taxable income?
• How is the cost basis of the original cryptocurrency and the new cryptocurrency determined after a fork?
• Does it matter if the taxpayer sells the new cryptocurrency immediately, or holds it for a longer period?

The lack of clarity surrounding forks creates confusion and makes it difficult for taxpayers to accurately report their crypto-related income and losses.

The Congressional Blockchain Caucus and Their Role

Four of the eight members who signed the letter to the IRS are part of the Congressional Blockchain Caucus.This group is dedicated to fostering a better understanding of blockchain technology and advocating for policies that support its responsible development.Their involvement highlights the importance of this issue to the blockchain community and the need for clear regulatory guidelines.

Why Crypto Tax Clarity Matters

The push for clear cryptocurrency tax guidance isn't just about simplifying things for taxpayers; it's about fostering innovation, encouraging responsible investment, and ensuring fair tax collection.Here's why clarity matters:

• Encourages Compliance: Clear rules make it easier for taxpayers to comply with their tax obligations, reducing the risk of errors and penalties.
• Attracts Investment: Clarity reduces uncertainty, making crypto a more attractive investment option for both individuals and institutions.
• Promotes Innovation: By providing a clear legal framework, the IRS can encourage innovation in the crypto space, allowing businesses to develop new products and services without fear of running afoul of the law.
• Ensures Fair Tax Collection: Clear guidance ensures that the government can collect taxes fairly and efficiently, without stifling the growth of the crypto industry.
• Reduces Legal Risks: Clear rules provide a safe harbor for taxpayers and businesses, reducing the risk of audits and legal challenges.

The current ambiguity surrounding crypto tax laws creates a significant barrier to entry for many potential investors and hinders the overall growth of the digital asset market.

The IRS's Current Stance and Previous Guidance

The IRS has issued some guidance on cryptocurrency taxation in the past, but it has been limited in scope and has not addressed all of the key issues.While initial guidance was provided, ambiguity around basic questions of how taxpayers should calculate and track the basis of their virtual currency holdings is unacceptable.Specifically, the IRS released Notice 2014-21, which classified virtual currency as property for tax purposes, meaning general tax principles applicable to property transactions also apply to transactions using virtual currency.

However, this guidance is not sufficient to address the complexities of modern crypto transactions, such as DeFi lending, staking, and yield farming. Providing information on tax law changes, IRS programs and procedures to help taxpayers; Responding to inquiries on general IRS administrative matters; Organizing meetings and briefings with IRS subject matter experts for congressional staff; Coordinating IRS participation in workshops and other events, at the request of local congressional staffThe letter from Congress emphasizes the need for more comprehensive and up-to-date guidance that reflects the evolving nature of the crypto market.

Senator Warren's Scrutiny of Crypto Exchanges

While the Congressional letter focuses on tax clarity, it's important to note that regulatory scrutiny of the crypto industry extends beyond taxation.For example, Senators Warren and Van Hollen have also sent a letter to Attorney General Merrick Garland, urging the Department of Justice (DOJ) to investigate the crypto exchanges Binance and Binance.US for potentially making false statements to Congress. The IRS will never contact a taxpayer using social media or text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov. More information. Understanding Your IRS Notice or Letter; Tax Topic 651, Notices What to DoThis highlights the broader concerns about transparency and regulatory compliance within the crypto industry.

How the IRS Typically Responds to Congressional Inquiries

The IRS generally takes congressional inquiries seriously and typically responds in a timely manner.The IRS may provide a written response to the letter, outlining its plans to address the concerns raised by Congress.The agency may also hold meetings with members of Congress and their staff to discuss the issue in more detail. 8 Congress Reps Send Letter to IRS urging Further Crypto Tax ClarityIn some cases, the IRS may issue new guidance or regulations in response to congressional inquiries.

However, it's important to note that the IRS has a significant workload and competing priorities. Tax Clarity is a type of tax optimization software that allows financial advisors to identify sub-optimal tax situations, demonstrating to clients how to make the most effective and tax-friendly retirement decisions.It is unlikely that the IRS will prioritize additional guidance over the priorities identified in its Tax-Exempt and Government Entities Fiscal Year 2025 Program Letter and its Accomplishments Letter released in January 2025.

Practical Steps for Crypto Taxpayers

In the meantime, while waiting for clearer guidance from the IRS, here are some practical steps that crypto taxpayers can take:

1. Keep Detailed Records: Maintain meticulous records of all crypto transactions, including dates, amounts, prices, and wallet addresses.
2. Use Crypto Tax Software: Consider using specialized crypto tax software to help track your transactions and calculate your tax liabilities.
3. Consult with a Tax Professional: Seek advice from a qualified tax professional who is familiar with cryptocurrency taxation.
4. Stay Informed: Stay up-to-date on the latest developments in crypto tax law and guidance from the IRS.
5. Be Conservative: When in doubt, take a conservative approach to reporting your crypto income and losses.

It is important to note that the IRS will never contact a taxpayer using social media or text message.The first contact from the IRS usually comes in the mail. Eight members of the U.S. House of Representatives have sent a letter to the commissioner of the Internal Revenue Service, asking for the agency to expand and clarify its guidance around tokenTaxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov.

Addressing Common Questions About Crypto Taxes

Let's address some common questions taxpayers often have regarding crypto taxes:

Q: Is simply holding cryptocurrency taxable?

A: No, simply holding cryptocurrency is not a taxable event. Members of Congress push IRS for tax clarity on crypto airdrops, forks The Block Crypto Eight members of the U.S. House of Representatives have sent a letter to the commissioner of the Internal Revenue Service, asking for the agency to expand and clarify its guidance around token airdrops and blockchain network forks.A taxable event occurs when you sell, trade, or otherwise dispose of your cryptocurrency.

Q: How is cryptocurrency taxed?

A: Cryptocurrency is generally treated as property for tax purposes. The Blockchain Association marshalled 75 crypto signatories to a letter calling for Congress to repeal the IRS's decentralized financial broker rule from December.This means that the same tax rules that apply to stocks and other investments also apply to cryptocurrency.

Q: What is a capital gain or loss?

A: A capital gain occurs when you sell cryptocurrency for more than you paid for it.A capital loss occurs when you sell cryptocurrency for less than you paid for it.

Q: How are capital gains and losses taxed?

A: Capital gains are taxed at different rates depending on how long you held the cryptocurrency before selling it.Short-term capital gains (held for one year or less) are taxed at your ordinary income tax rate. Eight U.S. Congressmembers appealed to the IRS, urging the agency to provide additional clarity concerning crypto tax laws. Eight members of the United States (U.S.) Congress sent a letter to the Internal Revenue Service (IRS) urging the agency to provide additional clarity on cryptocurrency tax laws. A letter dated Dec. 20, signed by eight U.S. MoreLong-term capital gains (held for more than one year) are taxed at a lower rate, depending on your income level.

Q: What if I receive cryptocurrency as payment for goods or services?

A: If you receive cryptocurrency as payment for goods or services, you must report the fair market value of the cryptocurrency as income.

Q: Can I deduct losses from my crypto investments?

A: Yes, you can generally deduct capital losses from your crypto investments, but there are limitations.You can only deduct up to $3,000 in capital losses per year (or $1,500 if you are married filing separately). BTCUSD Bitcoin 8 Congress Reps Send Letter to IRS Urging Further Crypto Tax Clarity Eight U.S. representatives signed a letter to the IRS, asking the agency to further clarify cryptocurrency tax expectations Continue reading 8 Congress Reps Send Letter to IRS Urging FAny losses exceeding this limit can be carried forward to future years.

The Importance of Communication with the IRS

If you receive a notice or letter from the IRS regarding your cryptocurrency taxes, it's important to respond promptly and professionally.Follow a standard business letter format for professionalism.Start with your full address at the top left corner of the page.Use the address specified on the IRS notice or form.Write the date of the letter below your address. On J, Senators Warren and Van Hollen sent a letter to Attorney General Merrick Garland asking the Department of Justice (DOJ) to investigate the crypto exchanges Binance and Binance.US for potentially making a series of false statements to Congress.Clearly state the purpose of your letter (e.g., Response to Notice).

The Future of Crypto Tax Regulations

The letter from Congress is a clear indication that the need for clarity in crypto tax regulations is growing.As the crypto market continues to evolve, it is likely that the IRS will issue more comprehensive guidance in the future. Proudly serving the Phoenix area with the highest quality tax accountant services for years. 8 Congress Reps Send Letter to IRS urging Further Crypto Tax ClarityThis guidance will need to address the complexities of modern crypto transactions, such as DeFi, staking, and NFTs.

Ultimately, the goal is to create a regulatory framework that is fair, efficient, and encourages innovation in the crypto space.

Conclusion: A Call for Action on Crypto Tax Clarity

The letter sent by eight members of Congress to the IRS underscores the urgent need for further clarity on cryptocurrency tax laws, particularly concerning airdrops and blockchain forks. 8 members of the U.S. Congress, including four from the Congressional Blockchain Caucus, have asked the IRS to provide more clarity about crypto tax, with emphasis on forks and airdrops.This lack of clarity not only burdens taxpayers but also hinders the growth and adoption of digital assets. Eight U.S. representatives signed a letter to the IRS, asking the agency to further clarify cryptocurrency tax expectations Continue Cookie Policy 44 (0) 203 8794 460 Free Membership LoginBy addressing these issues, the IRS can promote compliance, attract investment, and foster innovation in the crypto space.While waiting for updated guidance, taxpayers should maintain meticulous records, consider using crypto tax software, and consult with tax professionals.The future of crypto taxation hinges on clear, comprehensive, and up-to-date regulations that reflect the evolving nature of the digital asset market.The IRS's response to this congressional inquiry will be a crucial step in shaping that future. 8 Congress Reps Send Letter to IRS Urging Further Crypto Tax ClarityIt's time for the IRS to act decisively and provide the clarity that the crypto community desperately needs. Follow a standard business letter format for professionalism. Your Address: Start with your full address at the top left corner of the page. IRS Address: Use the address specified on the IRS notice or form. Date: Write the date of the letter below your address. Subject Line: Clearly state the purpose of your letter (e.g, Response to NoticeBy taking action, the IRS can empower taxpayers to navigate the complexities of crypto taxation with confidence, ensuring a fair and sustainable ecosystem for all.Ultimately, this proactive approach will pave the way for responsible innovation and broader adoption of digital assets.