Although Bitcoin is recognized as a commodity by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and federal courts, the Internal Revenue Service (IRS) does not treat it as such, leading to a significant issue: Bitcoin miners are taxed twice - when they mine and when they sell Bitcoin. This is the only case where a commodity is taxed in this manner.
Inadequacies in current tax policy
According to the IRS's mistaken guidance from 2014, Bitcoin mining rewards are considered taxable income rather than created property. This allows for 'double taxation' on miners. In contrast, producers of other commodities (such as agricultural products, oil, gold) are only taxed when they sell their products.
Moreover, when people use Bitcoin for purchases, even for the smallest transactions, they still have to calculate and report capital gains, creating unnecessary administrative burdens for both the IRS and taxpayers. Even foreign currencies are used for small transactions without complex accounting regulations.
Calls for reform and potential new policies
President has committed to making the US a 'Bitcoin superpower' and has taken positive steps such as ending Operation Chokepoint 2.0 and launching a strategic Bitcoin Treasury. However, amending Bitcoin tax laws remains a significant policy change that needs to be made.
Although the 'One Big Beautiful Bill' does not address this issue, there are positive signs from Washington. Senator Cynthia Lummis recently announced a draft digital asset tax reform to tackle these issues, and the House Financial Services Committee is also holding a hearing on digital asset taxation during this 'crypto week'.
Reforming tax laws to treat Bitcoin like other commodities will simplify regulations, increase fairness for tax codes, and make it easier for both individuals and businesses to comply. It's time for the IRS to stop intervening in everyday purchases made with Bitcoin.
