The PAR Act amends the Internal Revenue Code to establish tax rules for digital asset lending, dealer/trader accounting, and foreign trading safe harbors, while also defining key digital asset terms.
David Kustoff
Representative
TN-8
The Providing Analogous Rules for Digital Assets Act (PAR Act) modernizes tax code provisions to address digital assets. It expands existing rules for securities lending to cover "traded digital assets" and allows dealers and traders of "widely traded digital assets" to elect mark-to-market accounting. Furthermore, the bill establishes a safe harbor to prevent foreign persons trading certain digital assets from being deemed engaged in a U.S. trade or business, and introduces key definitions for various digital asset types.
New PAR Act Treats Crypto Like Stocks: $500 Million Threshold and Tax-Free Lending Rules Proposed
The PAR Act is essentially a massive software update for the IRS. It aims to stop treating digital assets like a weird financial experiment and starts treating them more like traditional stocks and bonds. Specifically, it expands Section 1058 of the tax code so that if you lend out your digital assets—similar to how institutions lend out shares of Apple or Ford—you won't be hit with a massive tax bill just for the act of moving the assets. Under this bill, as long as you get back the same asset and any 'dividends' or interest earned during the loan period, it’s not considered a sale. This is a big deal for anyone involved in crypto lending or liquidity pools, as it provides a clear path to avoid accidental tax traps when moving assets between platforms.
The $500 Million Club
One of the most significant shifts involves who gets to use 'mark-to-market' accounting. Currently, if you’re a professional trader, you usually pay taxes when you sell. This bill allows dealers and heavy-duty traders of 'widely traded' digital assets to elect a system where they value their portfolio at the end of every year and pay taxes on the paper gains or losses (Section 3). To qualify as 'widely traded,' an asset generally needs a market cap of over $500 million and reliable price data from an exchange (Section 5). For a professional trader managing a high-volume desk, this could mean a lot less paperwork and more predictable tax cycles, but for the casual investor holding smaller 'alt-coins' that don't hit that $500 million mark, you’re still stuck with the old, more complicated rules.
Open Doors for Foreign Capital
The bill also rolls out the red carpet for international investors by expanding the 'trading safe harbor' (Section 4). Right now, foreign individuals can trade U.S. stocks without being treated as if they’re running a U.S. business—which saves them from a mountain of tax filings. The PAR Act extends this courtesy to digital assets. If a foreign investor uses a U.S. broker to trade Bitcoin or Ethereum, they won't suddenly owe Uncle Sam a cut of their global income. This is a clear move to keep the U.S. competitive as a global hub for digital finance, making it easier for foreign money to flow into U.S.-based exchanges and platforms.
Power to the Treasury
While the bill adds clarity, it also hands a lot of 'referee' power to the Treasury Secretary. The Treasury gets the final say on which assets are 'fungible' enough to count and can even change the $500 million market cap requirement if they think the market has shifted (Section 5). There’s also a specific carve-out to ensure this tax law doesn't accidentally decide whether a token is a 'security' or a 'commodity' for the SEC or CFTC—it’s strictly for the tax man (Section 6). For the average person, this means the rules for your crypto taxes could change based on Treasury Department memos rather than new votes in Congress, making it vital to stay tuned to the fine print as these regulations roll out.