Senators Warn Crypto Tax Rule May Force Firms to Sell Assets

Senators have expressed concern over a tax rule that could compel U.S. crypto firms to liquidate their digital assets to meet tax obligations, potentially hindering industry innovation. The 2022 Corporate Alternative Minimum Tax (CAMT), when combined with new accounting standards from the Financial Accounting Standards Board (FASB), could result in companies owing taxes on crypto assets they have not yet sold. This situation arises because the CAMT calculates tax liability based on adjusted financial statement income (AFSI), which now includes unrealized gains from crypto assets due to the mark-to-market accounting requirement.

Senators Cynthia Lummis and Bernie Moreno have argued that this tax interpretation could lead to forced sell-offs of crypto assets, discourage innovation, and put U.S. companies at a competitive disadvantage globally. They assert that neither Congress nor FASB intended this outcome, as it results from basing tax liability on decisions by a private organization rather than principles of taxation. The senators have urged the Treasury to exclude unrealized crypto gains from CAMT calculations and issue interim guidance to prevent long-term damage to the industry.

The potential consequences of this tax rule are substantial. Companies may be forced to sell their crypto assets to pay taxes, which could stifle industry innovation. Additionally, the U.S. could lose its competitive edge in digital finance if foreign competitors, who follow different accounting standards, are not subject to the same tax burdens. The senators' concerns underscore the need for a balanced approach to taxing crypto assets that supports innovation while ensuring fair taxation.