PARITY Act: What the US Digital Asset Tax Reform Draft Means for Accounting Firms and CFOs
Congress is running two parallel tracks on digital-asset policy. The CLARITY Act addresses market structure and has already cleared the House. The newer Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (PARITY) Act focuses squarely on tax treatment, and its draft provisions would materially change how accounting firms report client gains, how CFOs model corporate treasury positions, and how DeFi accounting policies are written. None of the provisions are law yet, but the direction of travel is clear enough that firms need to be modelling the impact now.
Two Bills, One Destination
The PARITY Act draft was released on 20 December 2025 by Ways and Means Committee members Representative Max Miller (R-Ohio) and Representative Steven Horsford (D-Nevada). It draws on an earlier framework circulated by Miller in July 2025, a companion Senate bill from Senator Cynthia Lummis (R-Wyoming), and a tax blueprint issued by the Trump administration.
Alongside it, the CLARITY Act passed the House on 17 July in a 294-134 vote. The Senate Banking Committee and Senate Agricultural Committee are each preparing their own versions, though both markups have already slipped: the Banking Committee postponed after a January 15 markup collapsed, and the Agricultural Committee missed a planned date and is now targeting late January. Any path to enactment requires merging the two Senate bills and reconciling the result with the House-passed CLARITY Act, a significant legislative lift.
The PARITY Act itself is described by its drafters as a discussion draft with several provisions deliberately left unfinished. Lawmakers set an internal goal of completing the complementary tax legislation by the end of Q1 2026, but BDO's analysis notes that timeline could slip. Firms should treat the draft as directional, not definitive, while preparing for the possibility that a final bill arrives sooner than expected.
For context on the CLARITY Act's own uncertain path through the Senate, see our earlier analysis of the CLARITY Act legislative timeline and what accounting firms should watch.
Wash-Sale Rules: The Near-Certainty
What the draft proposes
The PARITY Act would extend the wash-sale rules under the Internal Revenue Code to digital assets. Under the proposal, a loss on a sale or exchange of a digital asset would be disallowed if a substantially identical asset was acquired within 30 days before or after the transaction. The definition of digital assets would track the broker-reporting rules in Section 6045, and the extension would also cover notional principal contracts and derivative instruments referencing digital assets.
Why it is almost certain to survive
This provision appears in both the PARITY Act draft and the Lummis bill, and it has explicit administration support. Crucially, it raises revenue, which makes it the mechanism that funds more taxpayer-favorable provisions elsewhere in the bill. Revenue-raising provisions rarely get dropped in reconciliation; they tend to get tightened. The PARITY Act draft would apply from the first tax year beginning after enactment. The Lummis bill sets a fixed start date of tax years beginning after 2025, which could mean an earlier effective date depending on the final text.
Planning window and ambiguity
The gap between now and enactment creates a potential window for clients holding unrealised losses to harvest those losses under current rules before wash-sale restrictions apply to digital assets. Firms should model this carefully. However, there is a significant caveat: while it appears broadly accepted that wash-sale rules currently do not apply to most digital assets as property, it is less settled whether the rules already apply to certain derivative transactions. Firms advising on structured products or token derivatives should flag this uncertainty explicitly before recommending any harvesting strategy.
Mark-to-Market Election Under Section 475
The proposed mechanics
The draft would create an optional mark-to-market election under Section 475 for traders and dealers in digital assets. Electing taxpayers would recognise gain or loss on publicly traded digital assets at fair market value on the last business day of the tax year. All resulting gain or loss would be treated as ordinary income or loss, mirroring the treatment already available to securities traders and dealers.
The Lummis bill includes a comparable provision with more explicit definitions for what constitutes a "specified digital asset" and who qualifies as a trader or dealer. The administration's draft blueprint also supports the concept. The PARITY Act draft is less prescriptive on definitions, meaning the final text will need to resolve scope questions before the election is operational.
Accounting and operational implications
For CFOs and accounting firms, an elective mark-to-market regime has significant appeal. It eliminates the need to track individual lot-level cost basis across thousands of transactions and aligns tax reporting with the fair-value treatment many entities already apply under US GAAP following the FASB's updated digital-asset accounting standard. Firms using crypto accounting software to manage high-volume trading books would benefit from a single year-end valuation event rather than transaction-by-transaction gain-loss tracking.
The practical obstacle is valuation. The draft does not yet specify which pricing sources or exchange conventions should govern year-end fair market value determinations. Digital assets trade across dozens of venues with materially different prices at any given moment. Before the election is viable at scale, regulators or the final statute will need to prescribe a valuation hierarchy, something the draft explicitly leaves open. Firms should begin documenting their current pricing policies now, since those policies will form the baseline against which any statutory standard is assessed.
The question of how AI-driven tooling affects valuation reliability is also relevant here. Our earlier piece on how AI accuracy gaps affect crypto accounting software workflows explores why automated pricing feeds require ongoing human oversight, a requirement that becomes more acute when year-end valuations carry direct tax consequences.
Mining and Staking: Deferral vs. Non-Recognition
Current IRS position
IRS Notice 2014-21 established that mining rewards are generally recognised as income upon receipt. Revenue Ruling 2023-14 extended that principle to staking, holding that rewards are taxable when the taxpayer obtains dominion and control over them. Neither piece of guidance directly addresses the character of the income, leaving a facts-and-circumstances determination in practice.
What PARITY proposes
The PARITY Act draft includes a provision that is still marked as being under technical drafting review. The policy intent is to create an election allowing taxpayers to defer recognition of mining and staking income for five years, or until the rewards are sold, whichever comes first. On the recognition date, the fair market value of the rewards at that point would be treated as ordinary income. The draft defines "mining and staking activity" broadly as validating transactions on a cryptographically secured distributed ledger and any closely related activities.
The draft also signals agreement on a policy direction that passive, protocol-level staking, where a token holder delegates to a validator without operating infrastructure, should not rise to the level of a trade or business. This matters because trade-or-business status affects self-employment tax exposure and the deductibility of associated expenses. The current framework is a pure facts-and-circumstances test, which creates significant uncertainty for clients with large staking positions.
How PARITY and Lummis diverge
The Lummis bill takes a structurally different approach. Under that proposal, mining and staking rewards would not be recognised as income at receipt at all; recognition would be deferred entirely until sale, at which point the proceeds would be treated as ordinary income. This is a more aggressive departure from Notice 2014-21 and Rev. Rul. 2023-14 than the PARITY Act's elective deferral model.
The gap between these two approaches is a central negotiating tension. The Lummis non-recognition model is more taxpayer-friendly but also more legally controversial given existing IRS guidance. The PARITY elective deferral preserves the income character established by Rev. Rul. 2023-14 while buying time on cash-flow grounds. Final legislation will almost certainly require a compromise, and the outcome will define DeFi accounting treatment for staking income for years.
Constructive Sale Rules: Reserved but Signalled
The PARITY Act draft reserves an entire section for constructive sale rules under Section 1259 but provides no actual legislative language yet. The stated policy direction is that taxpayers would be treated as having made a constructive sale of an appreciated digital asset when entering into transactions that substantially eliminate both the risk of loss and the opportunity for gain on that position, the same trigger used for short sales and total-return swaps in the securities context.
The Lummis bill has no equivalent provision. The absence of legislative text in the PARITY draft is itself informative: it signals that technical drafting on the scope of "substantially eliminate" in the context of token derivatives, lending arrangements, and structured DeFi positions is genuinely difficult. Firms advising clients on hedging strategies, collateralised lending, or liquidity provision should track this carefully. If enacted with broad language, constructive sale treatment could accelerate gain recognition on positions that clients currently treat as open.
What Accounting Firms and CFOs Should Do Now
Immediate portfolio and policy review
The wash-sale provision is the highest-probability change and the one with the most immediate planning relevance. Firms should map client digital-asset portfolios for unrealised losses now and model whether basis-reset transactions before the effective date are warranted. This requires knowing current lot-level cost basis across all wallets and exchanges, precisely the function where robust digital asset accounting software pays for itself.
Election readiness
For clients who operate as traders or dealers in digital assets, the Section 475 mark-to-market election will require a formal, timely election filed with the tax return. Firms should identify which clients would qualify and begin documenting the factual basis for trader or dealer status under current case law, since that analysis will underpin the election if it becomes available.
Staking income documentation
Until the PARITY Act or Lummis bill is enacted, Rev. Rul. 2023-14 remains controlling. Clients must continue recognising staking rewards as income at receipt and recording fair market value at that date. Any crypto bookkeeping software or digital asset accounting software used to track staking should be configured to capture date-of-receipt valuations, since those records will determine the baseline if a deferral election is later adopted and a transition basis needs to be established.
Monitor committee markups closely
The PARITY Act draft will change, possibly significantly, before any floor vote. The constructive sale and staking provisions in particular are openly unfinished. Firms should assign responsibility for tracking Ways and Means Committee releases and flag any substitute amendment or technical corrections document the moment it is published. The aggressive Q1 2026 target date means changes could arrive quickly.
Frequently Asked Questions
Does the PARITY Act apply to DeFi protocols and validators?
The draft's definition of mining and staking activity covers validating transactions on a cryptographically secured distributed ledger and closely related activities. DeFi staking and validation would likely fall within this definition, though the final text may narrow or expand scope. The draft also signals that passive, protocol-level staking should not constitute a trade or business, which would affect self-employment tax analysis for DeFi participants.
When would wash-sale rules take effect for digital assets?
The PARITY Act draft would apply from the first tax year beginning after the date of enactment. The Lummis bill proposes tax years beginning after 2025. Neither bill is enacted. Firms should monitor the legislative process for an effective date and advise clients on any pre-enactment planning window.
Is the Section 475 mark-to-market election mandatory?
No. The draft makes the election optional. Taxpayers who do not elect would continue using their current cost-basis method. The election would be most relevant for high-frequency traders and dealers who already apply mark-to-market accounting for financial statement purposes.
How does the PARITY Act interact with the CLARITY Act?
The two bills address different aspects of digital-asset regulation. The CLARITY Act covers market structure, registration, and custody. The PARITY Act addresses tax treatment. Lawmakers have indicated the two could eventually be combined or coordinated, but as of the publication date, they remain separate legislative tracks in different committees.
What should firms do about staking income reporting while the draft is pending?
Revenue Ruling 2023-14 is still the governing authority. Staking rewards must be recognised as ordinary income when the taxpayer obtains dominion and control. Firms should ensure their digital asset accounting software captures date-of-receipt fair market values for all staking rewards and that client records are complete enough to support a transition calculation if Congress changes the recognition rules retroactively or from a specified effective date.
Source: BDO Insights