Senators Lummis and Moreno push for crypto tax relief under CAMT as Missouri plans to eliminate capital gains on digital assets.
A new legislative initiative has been introduced by US Senators Cynthia Lummis and Bernie Moreno to simplify the tax treatment of digital assets classified as “crypto.” Their proposal is in response to the increasing apprehension that the current tax laws may impose unjust burdens on cryptocurrency companies.
Cynthia Lummis and Bernie Moreno’s Proposal to Reduce Crypto Tax
As per Cynthia Lummis and Bernie Moreno’s submission to the US Treasury, the Corporate Alternative Minimum Tax (CAMT), implemented in the 2022 Inflation Reduction Act, necessitates the resolution of complications. Corporations with an average adjusted financial statement income (AFSI) of at least $1 billion over three years are subject to a 15% minimum tax under CAMT.
Cynthia Lummis’s crypto tax proposal emphasizes the exclusion of unrealized gains and losses from the fair value accounting of digital assets in the calculation of AFSI. These exclusions would shield companies from transient fluctuations in market prices that could result in crypto taxation. Lawmakers formulated the legislation in response to a rule issued by the Financial Accounting Standards Board (FASB) that mandates reporting digital assets at fair market value on income statements.
The sponsors contend that the new accounting rule and CAMT may lead to tax liabilities that surpass a firm’s actual economic gains. This result may discourage investment in digital assets and encourage companies to relocate their operations outside the United States.
Corporate Tax Exposure and the FASB Rule
FASB issued Accounting Standards Update 2023-08 in late 2023, which requires digital assets to be reported at fair value following Generally Accepted Accounting Principles (GAAP). This action was intended to enhance transparency; however, it inadvertently resulted in firms being subjected to crypto tax liabilities under the CAMT for unrealized gains.
Companies must now designate digital assets like Bitcoin and Ethereum to market after each quarter. Even when the assets are not sold, they report losses on the balance sheet and document gains as income.
In their proposal to address the crypto tax, US Senators Cynthia Lummis and Moreno urge the Department of the Treasury to utilize its authority under sections 56A(c)(2), (15), and (16) to modify AFSI calculations. Their proposal encouraged the Treasury to exclude unrealized gains and losses associated with digital assets from the calculation of CAMT liability.
Precedents and Concerns in the Crypto Industry
US Senators Cynthia Lummis and Bernie Moreno have stated that the absence of distinct regulations may necessitate U.S.-based companies to liquidate their assets to satisfy CAMT obligations. Due to the new regulations, businesses may relocate their operations to nations with more advantageous tax regimes. Furthermore, they emphasize that domestic firms are not guaranteed tax equality with foreign companies, as international standards do not mandate fair value accounting for crypto assets.
The IRS acknowledged these issues in 2023 and responded with Notice 2023-20, which provided temporary relief to the insurance sector under CAMT. Amid these tensions, the IRS Digital Asset Initiative leaders, Seth Wilks and Raj Mukherjee, have recently departed before the 1099-DA implementation, which has sparked concern within the crypto industry. The Senators subsequently propose that this occurrence illustrates the necessity for the Treasury to take immediate action to avert undesirable developments in the digital asset market.
They urge the Treasury to issue interim guidance promptly and amend the final rule to exclude fair value adjustments for digital assets.
“This would help ensure fair treatment and support innovation in digital finance,” the proposal says.
Missouri State has passed a bill to eliminate the capital gains tax
Missouri passed House Bill 594, which would eradicate the state capital gains tax on crypto assets in a separate development from the Cynthia Lummis proposal. The bill is currently awaiting the governor’s assent. Missouri would become the first state to eliminate capital gains tax on all asset classes, including Bitcoin and XRP, if the legislation were to be ratified.
Meanwhile, the future of federal policy changes remains ambiguous. The probability of a second Trump administration eliminating capital gains taxes on crypto in 2025 is only 12%, according to a prediction market on Kalshi. Polymarket, an additional market, exhibits a marginally higher level of optimism, albeit still below the majority.
Donald Trump recently proposed substituting tariffs for income taxes as a long-term reform objective, which has sparked speculation regarding potential modifications to crypto taxation. Nevertheless, no formal policy has been implemented at the federal level to achieve this objective.
