Summary
- Ways & Means Reps. Miller and Horsford release discussion draft on taxation of digital assets
- OECD Releases Side-by-Side Package
- Treasury and IRS solicit comments on Voluntary Disclosure Practice changes
- Treasury and IRS issue proposed regulations on OBBBA vehicle loan interest deduction
- Treasury and IRS issue Notice 2026-3 providing relief from additions to tax for underpayment of estimated income tax regarding the OBBBA provision on sale of farmland
Ways and Means Committee Members Release Bipartisan Discussion Draft on Taxation of Digital Assets
On December 20, Reps. Max Miller (R-OH) and Steven Horsford (D-NV), both Members of the Committee on Ways and Means, released a bipartisan discussion draft on the taxation of digital assets, the Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (“PARITY”) Act. The discussion draft addresses de minimis gain on regulated payment stablecoins, the source rules for trading in digital assets, digital asset lending agreements, wash sales of digital assets, mark-to-market elections for dealers and traders in digital assets, constructive sales, digital asset staking and mining, charitable contributions of digital assets, the general treatment of gain and losses from investments (not limited to digital assets) that are marked to market for accounting purposes under the corporate alternative minimum tax (CAMT), and certain digital asset activity by grantor trusts and publicly traded partnerships. The discussion draft contains significant bracketed areas, with Explanatory Notes providing information on the general policy direction and intent in those areas.
De minimis gain: An owner (other than a securities or commodities broker or dealer) would not recognize gain or loss on the sale or exchange of regulated payment stablecoin provided its value was within 99 cents to $1.01 per unit of stablecoin. If the sale or exchange occurs outside this range, the per unit basis would be $1.00. An Explanatory Note states that the rule is intended to establish a per-transaction de minimis threshold of $200 under which gain would not be recognized, similar to the foreign currency transaction exception under section 988, and that the sponsors are considering an aggregate annual limitation. Extensive regulatory authority would be provided to Treasury. The limitation of the de minimis rule to regulated payment stablecoin is meant to follow existing rules, and does not reflect a determination whether other digital assets should be similarly treated.
Sourcing rules: Digital assets would be added to the trading safe harbor rules in section 864(b)(2), covering trading through resident independent agents (including digital asset exchanges) and trading for a taxpayer’s own account, in each case, generally limited to assets customarily traded on exchanges and so long as the transaction is of a kind customarily consummated at such exchange.
Digital Asset Lending Agreements: Section 1058 nonrecognition principles would be applied to bona fide lending of certain fungible, liquid digital assets. Treasury would be given wide rulemaking authority, including for forks and airdrops in the context of lending transactions. These tax rules would not imply whether a digital asset is a “security” under federal securities laws. An Explanatory Note provides that non-fungible tokens, illiquid or thinly traded digital assets, and tokenized or synthetic instruments would not be covered by the section 1058 rules.
Wash Sales: “Specified assets,” including actively traded digital assets and a wide range of related derivatives and notional principal contracts, would be subject to wash sale loss disallowance rules.
Mark-to-Market Election: Dealers and traders in digital assets would be permitted to elect mark-to-market treatment (subject to an “actively traded” limitation to be defined by Treasury).
Constructive Sales: The draft contains bracketed language and an Explanatory Note stating an intention to modify Section 1259 to apply to digital assets.
Digital Asset Staking and Mining Election: An Explanatory Note states an intention to craft a compromise between immediate taxation upon dominion and control versus full deferral until disposition. It mentions one possibility is an election very broadly analogous to Section 83(b) under which recognition of awards would be deferred for five years at which point the fair market value of the asset on the date of recognition would be ordinary income.
Charitable Contributions and Qualified Appraisals: An Explanatory Note states an intention to create rules distinguishing between highly liquid, widely traded assets and speculative or illiquid assets consistent with existing charitable valuation rules in Section 170. Deductions for charitable contributions of illiquid assets would be limited to the amount actually realized by the charity upon disposition.
Corporate Alternative Minimum Tax: Section 56A would be amended to exclude “unrealized gains and losses from investments that are marked to market for solely accounting purposes” from adjusted financial statement income. Notice 2025-49 generally provided such an exclusion from gains and losses on digital assets for CAMT purposes.
Grantor Trusts and Publicly Traded Partnerships: An Explanatory Note states an intention to “provide clarity for investment vehicles holding digital assets by establishing that passive, protocol-level staking does not constitute a trade or business for purposes of sections 512 and 864, while preserving ordinary business treatment for active, customer-facing validation activities.” Along roughly similar lines, Rev. Proc. 2025-31 provides a safe harbor for certain staking activities by grantor trusts.
Next steps on the taxation of digital assets
The tax-writing committees in both the House and the Senate have been examining digital asset taxation issues following enactment of the OBBBA in July. The House Ways and Means Oversight Committee held a hearing titled “Making America the Crypto Capital of the World: Ensuring Digital Assets Policy Build for the 21st Century” on July 16, 2025. The Senate Finance Committee held a hearing titled “Examining the Taxation of Digital Assets” on October 1, 2025. On June 30, 2025, Senator Cynthia Lummis (R-WY) introduced S. 2207 addressing the taxation of digital assets. The White House’s Working Group on Digital Asset Markets released a white paper on digital assets on July 30, 2025, including numerous tax legislative and regulatory recommendations. Treasury and the IRS highlighted digital assets as a main area of focus under the 2025-2026 Prior Guidance Plan released on September 30, 2025.
Given the significant bipartisan and bicameral congressional interest, along with Treasury and the White House, in the taxation of digital assets, it seems likely Congress will attempt to enact legislation addressing these issues in 2026. The PARITY Act has considerable overlap with the recommendations by the White House Working Group and S. 2207, although there are also important differences. The PARITY Act will likely form the starting point for negotiations. The release of the PARITY Act as a discussion draft signals a strong interest by Reps. Miller and Horsford, and the tax writing committees more generally, in obtaining feedback from interested parties to help shape the legislation. It is likely that Treasury and the White House will be heavily involved in shaping the legislation, and they are also interested in hearing from interested parties. Although it is possible that such legislation could be included in a potential Republican reconciliation bill, it appears more likely that it would be part of a bipartisan tax package. Treasury and the IRS will likely continue their regulatory activity on these issues even in the absence of legislation and would also be given wide discretion and several significant delegations of authority under the PARITY Act.
OECD Releases Side-by-Side Package
On January 5, 2026, the OECD released the details of the side-by-side agreement announced by the G-7 on June 28, 2025, along with other rules on Pillar 2 in a document entitled, “Tax Challenges Arising from the Digitalisation of the Economy—Global Anti-Base Erosion Model Rules (Pillar Two), Side-by-Side Package.”
Under the “side-by-side” feature of a Pillar 2, multinational companies parented in countries meeting certain criteria would not be subject to the IIR and UTPR. Those criteria are generally: (1) a corporate tax rate of at least 20%, (2) a corporate alternative minimum tax on financial statement income of at least 15% (3), provide a foreign tax credit for QDMTTs imposed by other countries, and (4) impose a worldwide minimum tax. Whether a country meets these criteria would be determined by the “Inclusive Framework” – currently, a group of 147 countries.
The document also includes a “Simplified Effective Tax Rate Safe Harbour,” a “Transitional Country-by-Country Reporting Safe Harbour,” and a “Substance-based Tax Incentive Safe Harbour” allowing a certain amount of such incentives to be treated as covered taxes.
According to the OECD, the document constitutes “Administrative Guidance” that will be incorporated into the “Commentary to the GLoBE Model Rules.”
Treasury and IRS solicit comments on Voluntary Disclosure Practice Changes
On December 22, the IRS proposed changes to its Voluntary Disclosure Practice (VDP), which allows taxpayers who have willfully failed to comply with tax or tax-related obligations to correct noncompliance and avoid a referral for IRS criminal investigation.
The proposed penalty framework would generally apply a 20-percent accuracy-related penalty for each year in the Disclosure Period (the most recent six years for delinquent and amended returns). If applicable, there would also be failure to file penalties, penalties of up to $10,000 per return per year for delinquent or amended international information returns, and penalties relating to delinquent or amended FBARs. According to the IRS, the “proposed penalty structure is intended to be clear, predictable, and consistent across all disclosures.”
Taxpayers who are conditionally approved to participate must, within three months of such conditional approval, file all applicable amended or delinquent income tax returns, international information returns, and FBARs, and fully pay all taxes, penalties and interest.
The IRS is seeking comments on the proposed changes, which are due by March 22, 2026.
Treasury and IRS Issue Proposed Regulations for Vehicle Loan Interest Deduction
On December 31, Treasury and the IRS issued proposed regulations (REG-113515-25) to address the OBBBA provision creating a temporary Federal income tax deduction for “qualified passenger vehicle loan interest” (QPVLI), along with new information reporting requirements under section 6050AA for certain persons who, in a trade or business, receive interest on “specified passenger vehicle loans” (SPVLs). The provision applies for taxable years beginning after December 31, 2024, and before January 1, 2029. Prior guidance, Notice 2025-57, provided transition relief for 2025 given the retroactive effect of the provision and the new reporting requirements. The proposed regulations provide a full operational system that (i) defines and administers the deduction and (ii) standardizes information reporting for the full life of the deduction.
On the deduction side, the proposed regulations detail who may claim the QPVLI deduction (generally individuals, decedents’ estates, and certain trusts), confirms availability regardless of whether the taxpayer itemizes deductions, clarifies that the deduction’s annual cap is $10,000 per return (the cap for a joint return has the same limit), applies a modified AGI phaseout, and proposes definitional rules for applicable passenger vehicles (APVs) and SPVLs. These rules include defining “personal use” as an expected more than 50% personal-use standard measured at the time debt is incurred, APV “original use” and “final assembly in the United States,” inclusion of certain vehicle-related items customarily financed such as warranties/service plans/taxes/fees, and exclusion of items such as negative equity and unrelated property.
The guidance also implements the statutory requirement that a taxpayer must report the VIN in the manner prescribed to claim the deduction. On the reporting side, if an interest recipient receives $600 or more of interest on an SPVL for a calendar year, it must file an IRS information return and furnish a payee statement to the “payor of record.”
The comment period ends February 2, 2026 (30 days after Federal Register publication on January 2) with a public hearing set for February 24. The proposed regulations estimate that 35,800 businesses will annually receive interest payments subject to the reporting requirements.