President Trump signed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act into law last month, creating a regulatory framework for stablecoins, a form of cryptocurrency pegged to fiat currency like the U.S. dollar or to short-term U.S. Treasuries.
Under the law, stablecoin issuers would be required to establish and disclose stablecoin redemption procedures and to issue periodic reports of outstanding stablecoins and reserve composition, which would be certified by executives and “examined” by registered public accounting firms. Issuers with more than $50 billion in stablecoins outstanding would be required to submit audited annual financial statements. They would be prohibited from paying interest to stablecoin holders.
“It’s a pretty big deal,” said Deloitte tax leader Rob Massey. “The GENIUS Act encompasses a lot of the regulatory questions, but it doesn’t address tax. It just emphasizes the fact that — with the passage of the Act and enabling of regulated stablecoins — for tax purposes, it’s property. It’s not issued by a central bank. We have private issuers. It’s not currency, and so from a tax perspective, that brings unique considerations when you’re anticipating high volumes of commercial transactions using something other than currency.”
That means the longstanding IRS guidance applies, treating cryptocurrency as property rather than as currency, as well as more recent crypto regulations that were issued last year.
“Our job then is to figure out what kind of property is it? That’s question one,” said Massey. “Not all stablecoins are created equal. And then, once you determine the type of property it is, then you look to the transaction, and what are the tax implications of using property in a commercial transaction, which could span many different areas. We think about revenue recognition, we think about sourcing. We think about informational reporting.”
He noted that some of those matters were clarified by the Treasury regulations that were published last summer on information reporting and the determination of the amount realized and basis for certain digital asset sales and exchanges are subject to reporting a transaction on a Form 1089-DA. Sections 6041 and 6045 of the Tax Code govern such transactions.
“When you get into information reporting, if you just take it category by category, one of the complexities is when you have withholding taxes,” said Massey. “If you were to have withholding taxes because you made a cross-border payment or you used it for payroll tax, and the payer withholds stables — if you’re using stablecoins in that transaction, and you withhold stablecoins — the federal government doesn’t take stablecoins at this time. If you’re the payer and the withholding agent, you’re then bound by keeping the stablecoins and remitting cash. You have the conversion, and you may be in the middle of yet another transaction between stables and fiat so that you can remit the fiat to the government.”
He noted that there was broad support by both chambers of Congress for the GENIUS Act. “When you listen to the policymakers discuss the implications of the bill, they seem to really grasp a lot of the fundamental implications, not just promoting the dollar, but there’s a lot of healthy dialogue,” he said.
The rules can be affected by revenue recognition considerations as well. “Anytime you’re dealing with a transaction that uses property instead of currency, then you have to take a look at what are the general rules and concepts that apply,” said Massey. “Think through whether or not you have a difference with regard to revenue recognition or taking a deduction. That’s a big one.”
He cited the information reporting requirements under both Sections 6045 and 6041 of the Tax Code.
“There could be unique nuances to sales tax,” he said. “There could be nuances to when you’re going through a multinational and you have stablecoins in your international subsidiaries. Does that change your GILTI [Global Intangible Low-Taxed Income] calculation and the mix of assets that is required. I’d say the overall implications on your GILTI analysis compared to Subpart F is a big deal. You’re now dealing in funds that may not run through a bank, so when you’re reconciling the supporting documentation for an exam, documenting your support for expenditures, you may not have bank records to come back to. You may have other sources of data that you may need to gather along the journey that could be asked about under exam. That’s a whole different muscle that people need to develop when they’re using stables as well as crypto.”
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