Congress Wants to Rewrite the Tax Rules for Crypto, Here Is What the Digital Asset PARITY Act Would Actually Do

If you have ever used a stablecoin to buy coffee, staked cryptocurrency for validation rewards, or simply wondered whether the IRS considers your crypto portfolio subject to the same wash sale rules as your stock portfolio, a bipartisan bill introduced in Congress might finally provide some answers. The Digital Asset PARITY Act, released in April 2026, is the most comprehensive attempt yet to create a coherent federal tax framework for digital assets. It would amend the Internal Revenue Code to address stablecoin transactions, staking income, securities lending of digital assets, wash-sale and constructive-sale rules, mark-to-market elections, and charitable contribution substantiation. Whether or not it passes in its current form, the bill signals where Congress is heading on crypto taxation, and that direction matters for anyone who owns, trades, or builds businesses around digital assets.

The bill starts with definitions, and the definitions reveal a lot about Congress's thinking. A "digital asset" is defined as a digital representation of value recorded on a cryptographically secured distributed ledger. That is broad enough to cover Bitcoin, Ethereum, NFTs, stablecoins, and virtually every token that exists today or might be created tomorrow. But the bill then creates subcategories that carry very different tax consequences. An "actively traded digital asset" is a fungible asset with a minimum trading volume of $50 million over the preceding two years and a minimum yearly market capitalization of $10 billion. That threshold is high enough to cover Bitcoin and Ethereum but would exclude the vast majority of altcoins, meme coins, and newer tokens. The distinction between actively traded and infrequently traded digital assets runs through the entire bill and determines which rules apply to which transactions.

The stablecoin provision is arguably the most practically significant part of the bill. Under current law, every sale or exchange of a stablecoin is technically a taxable event. If you use USDC to buy something, you have sold the USDC and must recognize any gain or loss, even if the gain or loss is a fraction of a penny. For anyone who uses stablecoins as a payment mechanism or as a temporary holding position between trades, this creates a compliance nightmare. You might execute hundreds of stablecoin transactions in a year, each generating a technically reportable gain or loss of a few cents. The Digital Asset PARITY Act would eliminate this problem for "regulated payment stablecoins" by providing that no gain or loss is recognized on the sale or exchange of a stablecoin unless the taxpayer's basis is less than 99 percent of the stablecoin's redemption value. In practical terms, if you bought USDC at roughly a dollar and sold it at roughly a dollar, there is nothing to report. If the stablecoin de-pegged and you sold it at a material loss, the loss would still be recognized.

The staking income provision addresses one of the most contested tax questions in the crypto space: when is income from staking recognized? Under current IRS guidance, primarily Notice 2023-14 and Revenue Ruling 2023-14, taxpayers who receive cryptocurrency through staking or validation activities must include the fair market value of the tokens in gross income in the taxable year they receive them. The Digital Asset PARITY Act would codify this treatment but add an important alternative. Taxpayers who acquire newly created digital assets through "passive validation" could either include the fair market value in gross income for the year of receipt, consistent with current guidance, or elect to defer the inclusion of income and capitalize the related expenses. The election to defer would be a meaningful benefit for stakers whose tokens are illiquid or volatile, because it would allow them to delay recognition until the tokens are sold or exchanged, at which point the gain or loss would be measured against a zero basis.

The bill also clarifies that passive staking does not constitute a trade or business. This is important for two reasons. First, it means that staking rewards would not be subject to self-employment tax under IRC § 1402, which would save individual stakers a significant amount in FICA taxes. Second, it means that staking activity alone would not cause a taxpayer to be treated as a trader or dealer in digital assets, which could trigger mark-to-market accounting and ordinary income treatment. The bill effectively treats passive staking as an investment activity, not a business activity, which is consistent with how most individual stakers view their participation in proof-of-stake networks.

The wash sale and constructive sale provisions represent a significant change from current law. Under existing rules, the wash sale rules of IRC § 1091 and the constructive sale rules of IRC § 1259 apply only to "stock or securities." Digital assets are neither stock nor securities under current tax law, which means that taxpayers can harvest crypto losses by selling a token at a loss and immediately repurchasing the same token, a strategy that would trigger the wash sale rule if done with stock. The Digital Asset PARITY Act would close this gap by replacing references to "stock or securities" with "specified assets," which would include digital assets. If enacted, selling Bitcoin at a loss and repurchasing it within 30 days would be treated the same as selling Apple stock at a loss and repurchasing it within 30 days, the loss would be deferred until the replacement asset is sold.

For dealers and traders of actively traded digital assets, the bill creates an election for mark-to-market treatment under a framework analogous to IRC § 475. Under mark-to-market, all positions are treated as if they were sold at fair market value on the last day of the taxable year, and all gains and losses are treated as ordinary income or loss rather than capital gain or loss. Mark-to-market election is attractive for active traders because it eliminates the capital loss limitation, under current law, individuals can only deduct $3,000 of net capital losses per year against ordinary income, with the remainder carried forward. Under mark-to-market, there is no such limitation. The tradeoff is that all gains are ordinary income, taxed at the taxpayer's marginal rate rather than the preferential capital gains rate. For high-volume traders with frequent gains and losses, mark-to-market typically produces a better overall result.

The securities lending provision extends existing non-recognition rules to eligible digital assets. Under current law, when a taxpayer lends securities to a broker-dealer, the transfer is not treated as a taxable sale, and any substitute payments received in lieu of dividends retain the character of the original payment. The Digital Asset PARITY Act would apply analogous rules to digital asset lending, which has become a significant activity in the DeFi ecosystem. Taxpayers who lend digital assets through qualifying arrangements would not recognize gain or loss on the transfer, and the return of equivalent assets would not be a taxable event. This is a practical necessity given the growth of digital asset lending platforms and the current legal uncertainty about whether lending a token is a taxable disposition.

The charitable contribution provision targets a specific abuse that has emerged in the digital asset space. Under current law, taxpayers who donate appreciated property held for more than one year can deduct the fair market value of the property without recognizing the built-in gain. For publicly traded securities, the valuation is straightforward, you use the trading price on the date of donation. For digital assets that are not actively traded, however, valuation is subjective, and some taxpayers have claimed inflated deductions based on questionable appraisals. The Digital Asset PARITY Act would impose strict substantiation requirements for charitable contributions of infrequently traded digital assets valued over $500, including a contemporaneous written acknowledgment requirement. This is similar to the existing qualified appraisal requirements for non-cash charitable contributions under IRC § 170 but tailored specifically to the digital asset context.

The bill also creates a safe harbor for transactions conducted through resident brokers or exchanges. Under the safe harbor, taxpayers who execute digital asset transactions through qualifying domestic intermediaries would receive certain protections, though the details of what those protections entail are still being developed in the legislative text. The intent appears to be to encourage on-exchange, regulated trading by providing tax certainty to taxpayers who use compliant platforms, while maintaining full enforcement authority over transactions conducted through unregistered or offshore venues.

Will the Digital Asset PARITY Act pass? Bipartisan sponsorship is a positive sign, and the crypto industry has been lobbying aggressively for legislative clarity. But the bill covers complex territory, and there are potential objections from both sides. Some lawmakers may resist the staking income deferral election as a revenue loser. Others may argue that the $10 billion market cap threshold for "actively traded" status is too high and effectively exempts most of the crypto market from wash sale rules. The securities lending provision will draw scrutiny from regulators who are still debating whether certain DeFi lending protocols constitute securities activities. And the stablecoin non-recognition provision, while practically necessary, may face pushback from the Treasury Department, which has historically resisted automatic non-recognition rules for property transactions.

Regardless of whether this specific bill becomes law, its framework is worth studying because it represents the most detailed congressional thinking on crypto taxation to date. For taxpayers who hold digital assets, the key takeaway is that the current era of minimal regulation and aggressive tax planning is closing. Wash sale rules are coming for crypto, if not in this bill, then in a future one. Staking income will be taxable in some form. Stablecoin transactions will eventually be clarified. The taxpayers who come out ahead will be the ones who track their basis, document their transactions, and structure their activities with an eye toward the regulatory direction of travel, not just the current rules.

If you hold digital assets, trade actively, participate in staking or DeFi lending, or accept crypto as payment in your business, now is the time to ensure your records are in order and your tax reporting is accurate. The rules are changing, and the IRS has made clear, through enforcement actions, new reporting requirements for brokers under IRC § 6045, and ongoing litigation, that digital asset compliance is a priority. Getting ahead of the curve is not just good tax planning. It is risk management.