Senator Lummis Calls for Urgent Crypto Tax Reform to Ease 100% Double Taxation on Miners

U.S. Senator Cynthia Lummis has called for urgent reform of the current tax policies affecting Bitcoin and other digital assets, citing significant flaws in the classification and reporting standards for crypto-related activities. These issues, she argues, are impeding innovation and creating substantial compliance challenges for the American crypto sector.

One of the primary concerns raised by Lummis is the treatment of Bitcoin miners under existing tax regulations. Miners are subject to what she describes as "double taxation"—first when they receive block rewards and again when they sell their holdings. This dual taxation places an undue financial burden on those who maintain and secure the blockchain infrastructure.

The same issue affects decentralized finance (DeFi) users, where routine on-chain interactions can trigger multiple taxable events through various smart contract executions. This can result in tax liabilities without corresponding capital gains, complicating tax reporting for users who may not have realized any actual profit.

The core of the problem lies in the broad definition of a crypto "broker" introduced by the 2021 Infrastructure Investment and Jobs Act. This definition could be interpreted to include miners, software developers, and node operators, who are then required to report sensitive user information such as names and transaction data. However, due to the pseudonymous and decentralized nature of their roles, these participants often do not collect or have access to such data, making the reporting demands technologically unworkable.

To address these challenges, Senator Lummis is advocating for the use of the reconciliation process, a legislative procedure that allows the Senate to amend tax-related laws with a simple majority vote. She proposes narrowing the definition of a crypto "broker" to exclude entities that do not perform direct intermediary services or have access to user data. This fix aims to ease compliance rules and reduce the burden on miners and DeFi users.

Lummis's push for reform comes as Congress continues to consider other major legislation for the digital asset space. The GENIUS Act and the CLARITY Act are among the bills progressing through the legislative process, indicating a broader effort to address the regulatory challenges faced by the crypto industry.

The 2021 tax rule has created a complex and burdensome tax environment for the crypto industry, particularly for miners and DeFi platforms. The rule's unintended consequences have led to decreased mining activity and uncertainty for DeFi platforms, making it difficult for them to comply with tax laws. The lack of clarity in the tax treatment of DeFi transactions has also deterred investment in the crypto industry.

Senator Lummis's proposal for a more straightforward and equitable tax treatment of cryptocurrencies has been welcomed by the crypto industry. Stakeholders are calling for clearer guidance on the tax treatment of DeFi transactions and a reduction in the tax burden on miners. These changes would make it easier for miners to operate profitably and for DeFi platforms to comply with tax laws, ultimately fostering growth and innovation in the crypto sector.