Avi-Yonah & Salaimi: A New Framework For Taxing Cryptocurrencies

Reuven Avi-Yonah (Michigan; Google Scholar) & Mohanad Salaimi (S.J.D. 2022, Michigan), A New Framework for Taxing Cryptocurrencies, 175 Tax Notes Fed. 1391 (May 30, 2022):

In this article, Avi-Yonah and Salaimi propose a new framework for taxing cryptocurrency throughout its life cycle. This article summarizes Avi-Yonah and Salaimi, A New Framework for Taxing Cryptocurrencies (Mar. 31, 2022).

This article describes a proposal to tax cryptocurrencies based on their unique features.1 It argues that while 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 tax results should take into account positive and negative externalities. It also claims that 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, this 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. ...

Conclusion
The U.S. framework for taxing cryptocurrency is unadministrable and ignores the defining feature that distinguishes crypto from other assets: its volatility. A new framework is needed that recognizes crypto’s unique features. Congress should act to provide that framework, overruling the IRS’s position in Notice 2014-21.