CLARITY With the legislation stalled, can Congress pass encryption tax regulations first?

A new Senate tax proposal has been added to a bill that was previously passed by a House of Representatives committee. Both measures involve payment, fees, and transaction rules, but they each have their own legislative pathways and cannot address the issues related to the market regulation framework.

• On September 15th, the Senate held a vote on the termination debate regarding the CLARITY bill, with 49 votes in favor and 50 votes against, and one senator abstained from voting; a minimum of 60 votes are required to initiate the debate.
• On September 16th, the House Ways and Means Committee advanced H.R .10357, the Digital Assets Tax Certainty Act, by a vote of 38 to 5, but the bill has not yet been passed by the entire House of Representatives.
• Senator Steve Daines jointly proposed the ADAPT bill on October 22nd with Cynthia Lummis, Bernie Moreno, and Tim Scott, aiming to establish rules for payments related to stablecoins that meet certain criteria, as well as network fees of $10 and below.
• The Senate proposal will also extend the rules on wash sales and presumed sales to digital assets, while addressing issues related to transactions, lending, and investment trusts.
• Tax legislation requires a vote from both houses of Congress, consensus on the same text, and signature by the President; its progress will not implement the SEC and CFTC market frameworks sought after by CLARITY.

In September, the Senate was unable to begin debate on the CLARITY legislation. On October 22nd, a group of Republican senators proposed another crypto bill: one that addresses the tax implications of using and trading digital assets. The ADAPT legislation announced by Daines proposes to exempt certain purchases of dollar-pegged stablecoins and small network fees from income or loss tracking, while also applying existing anti-abuse and financial market taxation rules to the crypto sector. The House of Representatives has another tax measure that has already been approved by a bipartisan committee.

This sequence provides a window, rather than a shortcut to the law. The official Senate roll call shows that on September 15th, a motion to advance H.R.3633 for debate was made; 49 senators voted to end the debate, 50 opposed it, and 1 abstained. The threshold is three-fifths, which is 60 votes. The senators did not vote on the final passage of CLARITY. The tax proposal still needs to go through committee and full Senate procedures, and if there are differences between the House of Representatives' and Senate versions, they must be coordinated and unified. A vote by a bipartisan committee in the House indicates support, but it does not guarantee that the Senate tax bill will receive 60 votes.

Tax rules and market structure address different issues.

CLARITY seeks to delineate regulatory authorities over digital assets and market intermediaries at the federal level, particularly regarding the roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). It also includes rules for certain trading venues and protocols. Tax legislation addresses when income or gains are recognized, how costs and losses are handled, which transfers are considered dispositions, and what brokers must report. Even if an exchange has clear rules in place regarding customer tax filings, it may still face unresolved registration issues under securities laws or commodity laws.

The article distinguishes the current regulatory authorities from the broader spot market framework being discussed by Congress. The same boundaries apply here. The tax exemption for the purchase of stablecoins does not equate to authorization for issuers, nor does it allow any platform to trade all assets. The GENIUS legislation regulates the issuance of payment-type stablecoins along a different path; the tax bill will refer to this legal category in certain aspects of its provisions, but it will not replace its regulatory standards.

For example, in the context of payments: If an American buys tokens at a certain price and then spends them at a later time when the value of the dollar is higher, according to current federal tax regulations, this may constitute a taxable disposition. Whether the payment service provider or the issuer has the necessary regulatory permits is another legal issue. It is possible to improve one set of rules without having to address another set. Treating tax developments as a substitute for CLARITY would overstate the effect of any single bill or regulation.

The income estimates provided by the House Committee also offer a window to observe their priorities. The reduction in small fees is expected to result in higher costs than the revenue generated by changes to the wash-sale rules, while other provisions lead to a net benefit for the overall proposal. That does not mean the bill will actually increase by exactly $500 million; the scoring utilizes behavioral assumptions and a specific budgetary timeframe. What it means is that legislators have a common basis for estimation upon which to negotiate. If the Senate expands the relief for stablecoins or tightens anti-abuse rules, the scoring could be significantly different, which would also change the alliances required to advance the bill.

The House of Representatives' proposal is not just a standalone crypto tax measure. The committee text also includes a clause regarding deductions for gambling losses. Its presence will affect negotiations across the house, as members may support or oppose the entire bill for reasons beyond digital assets. Reports on which crypto law will pass first should acknowledge that legislative vehicles often carry the interests of more than one group. The path forward for tax legislation cannot be inferred solely based on the attitudes of crypto stakeholders.

There are committee votes in the House of Representatives, but it is not yet law.

According to an official announcement from the House of Representatives, on September 16th, the fundraising committee passed H.R.10357 with a vote of 38 to 5. The terms described by the committee include small transactions, mining and staking, parity treatment with traditional financial assets, as well as reporting requirements. Reports on the details of the revisions indicate that the proposal sets an exemption of no more than $10 for qualified networks and transaction fees, rather than providing a general tax exemption for all small cryptocurrency purchases.

This difference has changed the situation for ordinary users. Nowadays, even if one only pays a few dollars in tokens as network fees, it may still be necessary to calculate the costs, even though the eventual profit is minimal. Exemptions from these fees can save users from such minor calculations, but they do not automatically exempt the larger purchases or exchanges that come along with those fees. The conditions and exclusions stated in the House of Representatives' text are also important, including how they handle transactions by businesses and frequent transfers. Describing the $10 fee exemption as an "encryption tax exemption" would erase its restrictive nature.

H.R 10357 also addresses other issues that are not covered by the payment examples mentioned in the title. It proposes tax regulations for digital asset lending, traders' and brokers' valuation based on market capitalization, mining and staking, investment trusts, as well as broker reporting. It also includes provisions for wash trading and deemed sales. The affirmative votes from the House committee have pushed the bill towards possible consideration by the entire House, but they do not obligate the House leadership to arrange a vote, nor do they compel the Senate to accept its provisions. The revised and passed alternative text, and not just the initial name of the bill, is the version that should be referred to when comparing it with subsequent Senate language.

According to current regulations, even if the taxable income from a single payment in US dollars is extremely small, it may still need to be recorded. Suppose someone buys something for a target value of $1 in qualified stablecoins and then spends it later. Even if there is a very small difference between the purchase and disposal, it could result in the calculation of income or loss under property taxation rules. The Senate proposal aims to eliminate this calculation for purchases within its scope, as stated in the summary by its initiators. This does not mean that all assets referred to as stablecoins will receive the same treatment, nor does it imply that merchants' independent income from sales is tax-free. Whether one qualifies and who the taxpayer is are both important factors.

The proposed fee reduction is more limited in scope. Blockchain network fees may be paid in tokens whose value has changed since they were acquired by users. Maintaining a cost base record for a fee of $8 may not be proportionate to the potential earnings. The proposed threshold of $10 provides a clear boundary for qualifying fees, but the final legislation still needs to specify how this amount will be calculated, which types of payments are included, and whether related transactions can be split to fall below this threshold. The House of Representatives' provisions also have their own conditions. The seemingly similar dollar figures in both chambers should not be assumed to have exactly the same meaning or application.

The bill with Daines provided the Senate with a tax text.

On October 22nd, the ADAPT bill announcement listed Daines, Lummis, Moreno, and Scott as co-sponsors. Its first provision aimed at consumers will eliminate the tracking of profits or losses when individuals use US dollar stablecoins regulated by the GENIUS bill to purchase goods and services. It also proposes to reduce fees for transactions of $10 and below. This bill is currently only a proposal; those making payments today should not assume that these exemptions are already in effect. The specific qualifications for stablecoins and the range of fees need to be determined by the actual text of the bill, not just the brief description in the press release.

The distinction between US dollar-stabilized coins and volatile tokens is intentionally designed. Qualified payment-stabilized coins are intended to maintain the value of the US dollar, making minor gains and losses in everyday consumption an expensive administrative burden. Purchases of Bitcoin or Ethereum may involve larger price fluctuations; therefore, granting broad exemptions for payments with each type of digital asset would lead to different fiscal and anti-abuse issues. The House of Representatives and the Senate may have differing versions of this text regarding these boundaries. If the same provision is to become law, a coordinating committee or amendment process must first resolve any inconsistencies.

Daines also proposes to continue using familiar rules when economic activities are similar to traditional finance. His summary includes provisions for securities lending, market value-based pricing options for traders and brokers, a safe harbor for foreign investors trading through U.S. markets, and charitable donation rules for a wide range of traded assets. These provisions affect institutions and professional taxpayers, not people who buy coffee. They also influence where trading businesses operate and how the Internal Revenue Service (IRS) consistently handles similar positions across different asset classes.

Blocking losses and exploiting loopholes can have an impact on revenue.

Both tax pathways employ measures to reduce burdens and protect income simultaneously. The summary of Daines extends the rules regarding wash sales and deemed sales to digital assets. Under current law, the rules for wash sales of securities typically disallow immediate deduction of losses when someone sells securities at a loss and promptly repurchases an essentially identical position. Digital assets are generally not subject to these legal regulations in the same manner. The existing tax guidelines from the National Tax Service describe the handling of such assets and this loophole. If the legal extension is implemented, it may change the way traders arrange for losses on sales and subsequent repurchases.

According to the estimates of the Joint Tax Committee, the House of Representatives' proposal is expected to have a net impact on federal finances of an increase of about $500 million over the fiscal years 2027 to 2036. The wash-sale clause is projected to add approximately $1.71 billion, while the reduction in minor fees is expected to result in a decrease of about $2.37 billion. These are estimates regarding the House of Representatives' proposal and not official evaluations of the newly proposed text Daines. They illustrate why the plan includes both concessions and tax base protection. One clause may be particularly noticeable to individual users, while another, which is less prominent, bears most of the financial costs.

The deemed sale provisions are aimed at situations where taxpayers retain formal ownership but offset the economic benefits through another position. The rules for digital asset lending require a determination of whether the transfer and return of substantially equivalent assets should trigger taxation at the time of the loan. These are not questions that can be simply answered with “yes” or “no” for all token activities. Contract terms, custody arrangements, the income generated by these arrangements, and who bears the market risks all affect tax treatment. The challenge faced by Congress is to establish rules that are precise enough to be enforceable without turning every routine transfer into a taxable sale, nor to provide loopholes for evading the law.

Taxpayers also need to know which party will send information to the National Tax Service (IRS). Broker reports may only show earnings and do not include the full cost of tokens obtained elsewhere. If tax reforms change the way qualified payments are recognized, this must also be reflected in the reporting guidelines; otherwise, automated forms will still treat each transfer as a taxable disposition. It is likely that the Treasury Department and the IRS will need to implement these guidelines after the bill is passed. Before the legal changes take effect, holders cannot assume that any exemptions that have been claimed will be reflected in the forms received for this tax year.

The voluntary disclosure procedure in the House of Representatives bill raises another unique issue. It will provide eligible taxpayers with a way to correct some past errors under certain conditions. The prospective stablecoin payment exemption cannot fix previous tax returns on its own; however, the eligibility rules for the disclosure procedure determine who can take advantage of it. Readers should not confuse these two concepts as a general amnesty promise. The tax and reporting provisions in the House bill apply to different time periods and groups of people.

Mining, staking, and reporting are still part of trading.

Miners or validators can receive token rewards, which they can then sell. Tax laws must determine when income is generated, what the value was at that time, and the cost basis for subsequent sales. The House of Representatives bill specifically addresses mining and staking. A announcement regarding Daines states that the ADAPT bill clarifies the treatment of investment trusts involving staked proof-of-stake assets. These provisions are related but may not be identical. To claim that the Senate bill adopts all the rules of the House regarding mining, it would be necessary to compare the final texts item by item.

Brokers are required to provide an additional layer of reporting. The 1099- DA form has begun to provide the Internal Revenue Service (IRS) with more information regarding the disposal of digital assets, yet taxpayers may still need records from transactions outside of brokers. Tax laws can modify definitions and recording obligations, but they cannot eliminate the fundamental responsibility to report taxable events. For individuals transferring assets between self-managed wallets, even if small fees are exempted, proving the cost basis remains a practical issue. Compliance burdens must be assessed in conjunction with the actual records that individuals and businesses need to retain after legislation is enacted, and not merely based on the number of sections in the bill.

The distinction between income and gains is equally important. Under current guidelines, rewards received may be subject to taxation at the time of receipt, while subsequent dispositions can result in separate capital gains or losses. The exemptions for qualified stablecoins do not silently cancel out the income that has already been recognized from mining, staking, or compensation. Readers should track different types of transactions separately according to the legislation. A headline that promises to simplify crypto taxation cannot cover all these scenarios, therefore both the enforceable legal provisions and the measures implemented by the Treasury Department are very important.

As regulatory authorities approve issuers and promote product compliance, the qualification rules may change over time. If Congress links tax exemptions to regulated categories, taxpayers and payment service providers will need a reliable way to determine the status of tokens on trading days. If an entity obtains an exemption before its application is completed, it may lead to different interpretations compared to fully approved issuers, depending on the final wording of the ADAPT. The announcement from the Daines team does not address all such scenarios. Operational solutions may require an authoritative list, effective dates, and clear guidelines for record-keeping, rather than relying solely on token symbols.

The status of the issuer cannot be verified solely on trading platforms. Tokens can be transferred between different networks and wallets, yet the legal issuer remains an enterprise subject to specific regulatory frameworks. The payment interface may display the correct name, but the transaction may actually route to another type of token or a different packaging form. Whether such a form meets the requirements depends on legal definitions and future guidelines. Such details usually become apparent only after the drafting of relevant legislation is completed and tax authorities attempt to apply it to real transactions.

The association with the GENIUS legislation cannot solve the issuer approval issue.

The Senate's proposed regulations for stablecoins refer to tokens that are regulated by the GENIUS legislation. This makes the eligibility of issuers for payment reduction regulations more significant, but tax status and issuer authorization remain two separate issues. The Federal Reserve Bank of America has finalized the federal issuer rules, which will take effect on January 18, 2027, yet the application window has not been opened as indicated in the guidelines dated October 21. A closer look at the OCC deadline can explain why existing issuers, with their applications being largely complete and pending review, have a time-limited exemption path available.

If Congress passes the ADAPT legislation in some form, users still need to know whether the tokens purchased comply with their legal definitions. The fact that issuers market them as "stablecoins" does not equate to their legal qualification. Holders also need a clear effective date: transactions that occur before the new rules take effect will still be judged according to the law in force at that time, unless Congress specifies otherwise. The announcement of Daines itself does not constitute an authorization for immediate retroactive relief.

Tax rules linked to regulated US dollar stablecoins may encourage payments through qualified issuers, but evidence of future demand remains to be seen. Merchants may prefer pricing in US dollars, but fees, redemption terms, network access, and user experience will all affect adoption rates. This tax proposal removes one potential barrier, but it does not guarantee that any particular token will gain users, nor does it ensure that every US dollar transfer will become inexpensive and instant.

The progression of legislation in Congress is influenced by the jurisdiction of various committees. The House of Representatives' tax bills originate from the Ways and Means Committee, while the Senate's Finance Committee is responsible for tax legislation. The issue of market structure, denoted by CLARITY, is handled through negotiations between a different set of committees and the entire Senate. This division of labor may allow legislators to reach an agreement on a narrower range of tax proposals, but it also means that previous debates surrounding CLARITY cannot be considered as part of the committee's work or a full Senate vote on the Daines text. Senate tax members must review the details, including income and issues related to the management of the Internal Revenue Service (IRS), before leadership can determine whether the conditions for voting are met.

The result of 38 votes to 5 in the House of Representatives does indicate support within the Tax Committee, but the denominator is important. The 43 votes from the committee do not represent the total votes of all members of the House of Representatives, nor can they directly indicate the stance of senators on the new bill. Similarly, the 49 votes to 50 for CLARITY are about whether to end the debate and proceed to the consideration of the bill, rather than the overall public opinion on tax reductions for stablecoins. Different bills attract different members for various reasons. A cautious prediction should await the names of the co-sponsors, the committee's actions, and the public stances on the actual text.

Voting, schedule, and common text

The CLARITY procedural failure serves as a reminder not to regard committee votes as a prediction of Senate passage. The revised market structure text before that vote still faced disputes regarding DeFi, ethics, and stablecoin incentives. The tax bill may attract different alliances due to its varying terms and committee jurisdictions. However, the Senate's usual threshold of 60 votes to terminate debate could still apply to controversial proposals, and lawmakers may also have disagreements over the effective date, revenue estimates, exemptions, or the definition of digital assets.

Following the Senate vote, there are further procedures to be followed. The House of Representatives must pass the tax legislation, and so must the Senate, with both chambers needing to reach an agreement on the same text. Subsequently, the President must sign the bill, or Congress must override a possible veto. If legislators attach these provisions to a larger fiscal bill, then the timeline and compromises of that bill will determine the fate of those provisions. The aforementioned steps will not occur automatically just because four senators have raised concerns (represented by ADAPT), or because a House committee passed the bill by a vote of 38 to 5. A letter dated October 22nd (referencing Blockchain Association) urges leadership to advance bipartisan tax legislation, but that is merely lobbying and does not constitute a commitment by congressional leadership to pass any particular bill.

The association stated that 67 million Americans hold and use digital assets. This is an indicative estimate, not a statistic derived from a new bill, nor should it be used to infer how many people would qualify for a particular exemption. A better measure of political progress is the public text of the bill, official committee actions, the full legislative agenda, recorded votes, and the final agreed-upon text submitted for signature. These steps are observable; however, expectations of a certain transaction being reached after CLARITY are not.

Some of these differences are technical in nature, while others are political. Expanding wash trading rules may increase revenue, but the impact on market makers and active traders is different from that on ordinary holders. Payment exemptions can reduce users' paperwork, but they require clear definitions that the Internal Revenue Service (IRS) can enforce. Collateral trusts need rules that reflect their structure, and at the same time, they should not inadvertently grant benefits that similar products do not have. Safe harbors for foreign traders may make US platforms more attractive, but they also raise issues regarding enforcement boundaries. Negotiators cannot resolve these differences by simply agreeing that “crypto taxes should be simpler”; they must choose which assets, transactions, and dates to cover.

Even if the texts of both houses are identical, the law will not immediately answer all operational questions. Regulations from the Ministry of Finance and forms from the State Taxation Bureau can determine how new exemptions should be recorded and declared. For certain provisions, the legal statutes may specify future effective years. Readers who plan to conduct transactions now should use the currently valid laws, rather than incorporating proposals that have not yet been passed into their calculations. The milestones that can be observed are those announced by Congress, while the economic impacts will only become apparent after implementation and use.

What counts as progress?

The most useful comparison next is the comparison between the text actually approved by the House of Representatives and the Daines bill. The areas of overlap between the two regarding stablecoins, the $10 fee threshold, lending, and wash trading serve as the basis for negotiations. If there are differences in covered assets, exclusions, or effective dates, these differences will affect costs and alliances. The Congressional Revenue Score of the Senate text will make it easier to compare with the House's estimates. The actions of the Fiscal Committee will show whether the Senate sponsors have convinced their colleagues beyond just making the announcement.

Tax reform may first become law, but there is currently no vote indicating that this will be the case. It will make certain transactions easier to declare and may also change the incentives for trading and staking. However, unless Congress returns to the CLARITY bill or incorporates these provisions into other bills, it will not address the core market structure issues of CLARITY. This distinction is an editorial boundary of this report: the tax bill proposed in October is news, but whether it can pass the Senate remains an open question.

What needs attention?

• Bill text and scoring: The official wording of ADAPT, as well as any estimates from the Joint Tax Commission, are to be compared with the H.R.10357 alternative text that has already been passed by the House of Representatives.
• Committee Path: Whether the Senate Finance Committee will hold hearings or make revisions, and whether the House leadership will arrange a floor vote on taxes.
• Definition: Which GENIUS stablecoins and network fees meet the criteria, as well as the effective dates of any burden reduction or anti-abuse provisions.
• Voting: A record vote by the entire body on the tax proposal, rather than inferring from a debate termination vote of 49 to 50 votes that differs from CLARITY.
• Market structure: Whether CLARITY will refile a motion or formulate negotiation text; the passage of tax laws will not fill in the missing frameworks of SEC and CFTC.

Frequently Asked Questions

CLARITY Did the bill fail in the final voting?

No. On September 15th, the Senate voted 49 to 50 to reject a motion to proceed with the debate on the bill, with another senator abstaining from voting. A vote of 60 is required to initiate the debate.

Has the House of Representatives passed an encryption tax law?

On September 16th, the fundraising committee approved H.R .10357 with a vote of 38 to 5. As of October 23rd, it has not yet been passed by the entire House of Representatives.

What is the ADAPT legislation?

This is a digital asset taxation proposal put forward by Daines along with Lummis, Moreno, and Scott on October 22nd. It covers qualified stablecoin payments, minor network fees, as well as several trading and anti-abuse rules.

Is the purchase of stablecoins tax-free now?

ADAPT The bill proposes to offer benefits or losses reduction when purchasing US dollar stablecoins that are regulated under the GENIUS legislation. The proposal of this bill will not change the current tax laws.

Does the $10 clause cover all crypto purchases?

Not covered. The relevant summary describes a limited exemption for eligible network fees of $10 and below. The House of Representatives bill also addresses certain transaction fees, but is subject to its own conditions.

Will tax law replace CLARITY?

No. Taxation handling and the market regulation division between SEC and CFTC are different issues. The tax law may be passed first, while the market structure bill is still unresolved.

Will the rules for encrypted wash trading continue to be allowed?

The current legal wash trading rules typically apply to securities, rather than crypto assets themselves. If the two proposals discussed here are passed, they will extend anti-abuse measures to cover digital assets within their scope.

What needs to happen before any tax proposal becomes law?

Both chambers must approve the exact same legislative text before it can be sent to the President. The Senate bill also has to go through committee and full-chamber procedures; as of now, no voting on passage has taken place yet.