Modernizing the tax code to meet America’s next era of financial innovation

The United States is closer than ever to establishing a comprehensive regulatory framework for digital assets. The GENIUS Act established clear rules for payment stablecoins, and market structure legislation is advancing. After years of regulatory uncertainty, the U.S. is sending a clear signal that it wants to lead the next era of financial innovation.

But one critical piece of that framework is still missing. The tax code.

While Congress and regulators have moved forward on market structure and payments, the Internal Revenue Code remains largely unchanged for the digital asset era. Digital assets are treated as property—a rule established by IRS Notice 2014-21 back when crypto was a niche experiment, not a $2.5 trillion global economy. Today, that means every stablecoin payment, every small DeFi transaction, every gas fee is technically a taxable event. The compliance burden this imposes on ordinary Americans isn't just inconvenient—it's a direct threat to the adoption and innovation the GENIUS Act was designed to unlock.

When Congress extended tax reporting to cryptocurrency brokers through the Infrastructure Investment and Jobs Act in 2021, the goal was sensible: bring digital assets into the same information-reporting framework as traditional finance. In practice, the scale of what's been created is staggering.

For the 2025 tax year, Coinbase will be required to issue millions of consolidated Form 1099-DAs to customers. Coinbase data show that much of the paperwork generated under the new requirements represents small transactions. Around 3.5M Form 1099-DAs will be issued to users with gross proceeds under $250, and 4.3M of the forms will go to users with proceeds under $600. And astoundingly, almost 700,000 of the forms are issued for proceeds under $1.

These forms are generating a paperwork avalanche that buries useful information in noise.

Taxpayers are already confused: after releasing Form 1099-DA for tax year 2025, Coinbase has so far received over 34 percent more customer service inquiries on tax reporting than in the equivalent period last year. There's also a compounding problem: cost basis is incomplete for over 63 percent of customers, because of the ways that digital assets move between wallets and exchanges.

The result is crypto users either overpaying their taxes or navigating adjustments their broker cannot help them with.

Current rules impose significant friction on everyday, small-scale use of digital assets. A user who spends $1 of BTC or ETH on a gas fee is technically required to calculate basis, recognize gain or loss, and report it—an approach that is difficult to apply in practice. A more workable framework would include a de minimis rule excluding small transactions—such as up to $600 annually or $50–$100 per transaction—from gain or loss recognition. The associated revenue impact would likely be minimal, while broader adoption could expand the tax base over time, resulting in a net positive effect. The benefits for compliance, usability, and consumer privacy would be substantial.

In the near term, Treasury could also provide administrative relief without statutory change by clarifying that brokers may aggregate multiple executions of the same digital asset by date on Form 1099-DA. Such aggregation would preserve all relevant tax information, including proceeds and cost basis, while significantly reducing reporting volume for active traders.

The GENIUS Act recognized payment stablecoins as a legitimate financial innovation intended for everyday transactions. But under current tax rules, each use of a stablecoin is treated as a taxable event. Simply using USDC to purchase a cup of coffee may require calculating a gain or loss. Applied across a high volume of routine transactions, this creates a substantial compliance burden for an asset designed to maintain a stable value.

There are also privacy considerations. Requiring reporting on each transaction could result in the collection of detailed records of ordinary consumer activity, raising questions about the appropriate scope of tax reporting relative to its enforcement objectives.

We need a more tailored approach. The current aggregate de minimis threshold of $10,000 in proceeds for designated stablecoins is insufficient since many 1099-DAs will still be issued for zero gain/loss stablecoin transactions—amounting to forms for nearly 13 percent of all Coinbase customers making designated stablecoin transactions. That number will only grow as adoption scales.

The United States faces an important policy choice: it can continue applying legacy tax rules to emerging technologies—resulting in significant administrative burden and potential constraints on domestic innovation—or it can build on recent bipartisan efforts, such as the GENIUS Act, to develop a more modern and coherent tax framework aligned with its broader goal of global financial leadership.

Note: Coinbase doesn't provide tax advice. Information here is provided to help customers understand their taxes. To ensure this information works for you, please work with a professional.