U.S. Crypto Tax Guide 2025: Navigating IRS Guidance, GENIUS & CLARITY Acts, and Crypto Income

The GENIUS Act, which was passed this year, regulates bank and non-bank stablecoin issuers, and one of the requirements is for the issuers to have dollar-for-dollar reserves in cash or short-term U.S. Treasuries and cash equivalents. While it might look like stablecoins are regulated as currency, the GENIUS Act bars issuers from paying interest/yield on the stablecoin itself, showing that the stablecoins for the next few years, at least, will still be treated differently from currency on the financial-regulatory side.

The CLARITY Act, which has passed the House, awaits the Senate. It would draw lines between crypto as securities/investment-contract assets and crypto as commodities, and provide for the SEC’s and CFTC’s specific oversight over different cryptos.

Where Tax Law Stand

Congress has passed these laws to improve financial regulatory certainty; however, there is no crypto-specific tax code beyond IRS broker reporting rules.

Congress expanded the Internal Revenue Code’s broker-reporting rules (IRC § 6045) to cover custodial crypto brokers (centralized exchanges/hosted wallets). Starting this year, crypto brokers are required to collect data, and beginning in 2026, they will send Forms 1099-DA to customers and the IRS.

Beyond reporting, there’s still no crypto-specific tax statute, so taxpayers can only look to the IRS guidance on crypto and digital assets. 

IRS Position on Crypto Tax

The IRS relies on general income-tax principles, and its guidance is interpretive, not legislative. Until Congress passes a crypto-specific tax statute, the IRS's view is enforceable but subject to judicial review.

Crypto Mining

Under current IRS guidance, block rewards from mining are treated as compensation for validation services and are included in ordinary income when you have dominion and control of the coins (that FMV becomes your basis). However, it is mining rigs’ nonstop computation that produces productive assets—like cattle producing calves or crops growing—so there is a counter position that creating new units should be non-taxable “production” and income should arise only upon sale of the resulting inventory.

While this production analogy is arguable, it isn’t widely used, as most miners want to start the long-term capital-gain holding period immediately for any later appreciation, so they prefer recognizing ordinary income at receipt, which aligns with the IRS position on mining income.  

Crypto STaking

Before Jarrett vs. United States (2019), there was no staking-specific authority, and the IRS applied the mining timing logic by analogy. Jarrett staked Tezos in 2019 and filed an original return to report them as ordinary income. Later, he filed an amended return claiming a refund. The IRS rejected the claim, so Jarrett filed a refund suit, challenging the IRS's position. Jarrett argued that staking creates new property that should not be taxed until sold. The IRS issued a full refund to Jarrett after the suit without conceding the legal issue. The court dismissed the case as moot and did not rule on the legal issue.

IRS took several years to formalize its position in Notice 2023-14 in direct opposition to Jarrett’s position that staking rewards are ordinary income when the taxpayer has dominion and control. However, the IRS took the position that staking, different from mining, is not automatically subject to self-employment tax. While the IRS treats mining as a trade or business subject to self-employment tax, staked tokens from an exchange or third-party validators are treated as rewards. Specifically, on Form 1099-MISC, it is non-Self-Employment “other income” in box 3. Form 1099 DA applies later when tokens are sold.

One year later, in 2024, Jarrett filed a new suit to obtain an actual ruling on the same legal issue to challenge the IRS position on staking for the second time, specifically whether tokens should be taxed upon creation or sold. We should wait to see this highly anticipated ruling on staking.

Airdrop and Forking 

The IRS position on new tokens from airdrop and fork relies on the income tax principle of dominion and control, where if such newly-created tokens are under the taxpayer’s dominion and control, they should be treated as ordinary income and taxed upon receipt. For example, when the ETH/ETC fork happened in 2016, some major platforms didn’t credit ETC until much later. Coinbase added ETC support years afterward. In that case, according to the IRS position, the taxpayer is not subject to immediate taxation until he has dominion and control over the ETC. 

SAFT Tax Issue

Like other early-stage companies, early-stage crypto technology companies often use SAFT, a simple agreement for future tokens, for fundraising. The SAFT was modeled on the startup SAFE as created by the startup accelerator Y Combinator in 2013, with the same intention to avoid debt’s tax treatment and the company’s repayment obligation. For the investors, entering SAFE/SAFT doesn’t start their long-term capital-gain clock. The holding period starts when they actually receive the stock (SAFE) or tokens (SAFT) and have control over them. However, while SAFE stock is usually issued outright without vesting to investors, SAFT tokens are frequently delivered with a schedule or lock-in period.   So, according to the IRS position based on dominion and control, the investor’s holding period starts when tokens are delivered to the investor’s wallet, not while custodially held by the issuer or third party where the investor lacks control; as such, each tranche delivered to the investor’s wallet starts its own capital-gain clock.

 Even though SAFE has been widely used for fundraising since 2013, there is no specific statute that addresses SAFE; the tax treatment of SAFE/SAFT still depends on general tax principles and facts and circumstances.

Even though SAFE is often analyzed as equity upon issuance or a variable prepaid forward, without SAFE-specific rulings, SAFT positions also remain open to challenge.

83(b) Election for Tokens

When tokens (or stock) are granted for services and are subject to vesting (a substantial risk of forfeiture), based on the IRS position that crypto should be treated as property, the service provider/fund GP may generally make a timely § 83(b) election (within 30 days), as it is applicable to property transferred, in exchange for service, so as to include the token’s fair market value at grant in income and start the holding period immediately despite the vesting period or lock-period. However, unlike private stock, where there is a 409A-style safe harbor, there’s no statutory valuation safe harbor for tokens, so contemporaneous, well-documented fair market value support is essential. Without statutory safe harbor or specific ruling, the IRS could challenge the fair market value on § 83(b) election.

Token Distribution by Partnership

A partner who receives tokens from a partnership generally treats it as a tax-free in-kind distribution—no tax that day. The partner’s outside basis drops, and the tokens take a carryover/limited basis. Even if the tokens are worth more than the partner’s outside basis, there’s still no immediate tax for property-only distributions; basis is simply capped.

However, tax issues can arise if tokens are treated as marketable securities, partnership tax rules treat marketable securities as cash, and the partner has to recognize gain to the extent that the token value exceeds the partner’s outside basis.

 Another issue arises when a token is distributed from a crypto trading partnership, which may be deemed a swap of “hot assets,” resulting in unexpected current ordinary income taxation.

 If the IRS recasts the token distribution as a payment for services or a disguised sale, the partner would be subject to immediate ordinary income taxation as well.

Simply relying on property tax principles is insufficient when analyzing crypto distribution in a partnership, as Subchapter K partnership tax rules don’t treat all “property” the same. Whether the distributed token is money/marketable securities, inventory (hot assets), or investment property can lead to very different results.

In the absence of crypto-specific tax statutes beyond reporting requirements, most crypto tax outcomes hinge on general principles, such as dominion and control, ordinary income versus capital gain, and fact-driven classification (such as debt versus equity).  For gray area questions (such as SAFTs, § 83(b) on token grants, Subchapter K distributions), document your facts, adopt sensible valuation policies, and consider written opinions to support your positions and manage penalty risk.