Part Bonus · Bonus · pp. 477–998

Chapter 24: Cryptocurrency and the GENIUS Act

The IRS taxes all digital assets as property while the enacted-but-not-yet-effective GENIUS Act creates a regulatory framework for payment stablecoins that could eventually drive separate tax treatment, but for now the property rules remain fully in force.

Overview

This chapter explains how the IRS taxes cryptocurrency and other digital assets under property principles established in Notice 2014-21, making every sale, trade, or purchase a taxable event requiring gain or loss calculation. It covers broker reporting through Form 1099-DA, which began for 2025 dispositions, the complexity of DeFi compliance under current rules, and thewash-sale landscape under Section 1091. The chapter stresses that despite legislative proposals for a de minimis exemption and broader wash-sale coverage, none of these changes has been enacted as of July 24, 2026.

The chapter then examines the GENIUS Act, signed July 18, 2025, which creates the first comprehensive federal regulatory framework for dollar-backed payment stablecoins but does not change their federal income-tax classification. The Act restricts issuance to bank subsidiaries, federally licensed nonbanks, and qualifying state-regulated entities, imposes one-to-one reserve backing with narrow permitted assets, and carves payment stablecoins out of SEC and CFTC jurisdiction. The chapter discusses the strategic policy objectives behind the Act, its reserve-driven Treasury demand mechanism, practical compliance strategies, and interactions with retirement accounts, estate planning, and charitable giving.

In this chapter

• 24.1 Current Tax Treatment of Cryptocurrency — IRS treats all digital assets as property; every disposition is a taxable event, and broker reporting via Form 1099-DA has begun
• 24.2 The GENIUS Act Regulatory Framework — Enacted statute creates bank-style supervision for dollar-backed payment stablecoins but does not change tax classification
• 24.3 The Strategic Dollar Hegemony Play — Reserve requirements channel stablecoin growth into Treasury demand and extend dollar influence through regulated private digital payments
• 24.4 Tax Code Evolution Trajectory — Regulatory bifurcation may eventually pressure parallel tax treatment, but no currency classification or de minimis exemption has been enacted
• 24.5 Strategic Advisor Framework — Three-bucket architecture separating traditional banking, stablecoin working capital, and investment holdings with distinct custody and tax treatment
• 24.6 Practical Implementation for 2026 and Beyond — Reconciliation of Form 1099-DA, record-keeping protocols, year-end tax planning, and realistic DeFi compliance options
• 24.7 Long-Term Strategic Positioning — Distinguish current law from proposed rules, integrate digital assets into comprehensive planning, and follow policy incentives toward stablecoins for payments and permissionless crypto for investment
• 24.8 Interaction with SECURE 2.0 and Retirement Accounts — IRAs and 401(k)s can hold cryptocurrency under certain structures, with Roth IRA treatment offering the strongest tax advantage
• 24.9 Interaction with Estate Planning — Inherited cryptocurrency receives step-up in basis under Section 1014, but access and control raise unique administration challenges
• 24.10 Conclusion and Current Outlook — Broker reporting is operational and the GENIUS framework is enacted but not yet effective; advisors should apply current law and label proposals accurately

Key terms

• Payment stablecoin — digital asset pegged to the dollar or other legal tender, backed by specified high-quality liquid reserves, and intended primarily for payments rather than investment
• Form 1099-DA — broker reporting form for digital-asset dispositions, required for 2025 and later transactions; reports gross proceeds and, for covered assets, basis
• Property classification — IRS treatment of virtual currency as property since Notice 2014-21, making every sale, trade, or purchase a reportable taxable event
• De minimis exemption — a repeatedly proposed but not enacted exclusion that would spare small personal cryptocurrency transactions from capital gains recognition
• Covered digital asset — generally a digital asset acquired after 2025 in a custodial account and continuously held there, for which broker basis reporting is mandatory
• Wash-sale rules (Section 1091) — disallow losses on sales of stock or securities repurchased within 30 days; apply to digital assets treated as stock or securities but not generally to property-classified crypto
• Step-up in basis (Section 1014) — inherited property takes a basis equal to fair market value at the owner's death, permanently eliminating built-in appreciation
• Qualified custodian — regulated entity providing segregated cold storage, insurance, and audit trails for significant cryptocurrency holdings

Who needs this chapter

Taxpayers and advisors who hold, transact in, mine, stake, or plan around cryptocurrency and digital assets, including those using stablecoins for payments, participating in DeFi, or integrating crypto into retirement or estate strategies.