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January 14, 2024 The Tax Lawyer

A New Framework for Taxing Cryptocurrencies

Vol. 77, No. 1 - Fall 2023

Reuven Avi-Yonah and Mohanad Salaimi


This Article explores the tax law challenges associated with the taxation of cryptocurrencies and offers proposals to address such challenges. The Article addresses the proper tax treatment of different cryptocurrency transactions and activities. It examines various aspects associated with the taxation of cryptocurrency through its life cycle, starting from earning cryptocurrency, through its disposal or exchange. The Article also examines the tax treatment of two special crypto events, hard forks and airdrops.

Specifically, this Article describes a proposal to tax cryptocurrencies based on their unique features. It argues that various ways of earning or receiving crypto tokens (for example, mining in proof-of-work (PoW) protocols like Bitcoin and staking in proof-of-stake (PoS) protocols like Ether) generate taxable income. The Article argues that the U.S. framework for taxing cryptocurrency is unadministrable and ignores the defining feature that distinguishes crypto from other assets: its volatility. Because of its volatility, crypto should not be taxed until tokens are exchanged for real-world items like fiat currency or goods and services. Finally, the Article argues that when crypto tokens are exchanged for fiat currencies or goods and services, they should be treated as foreign currency if held for less than one year.

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