A Washington-based research institute says current U.S. tax treatment of bitcoin effectively blocks its use as a routine payment method, arguing that the rules are designed for assets to be held, not spent.
Under existing Internal Revenue Service (IRS) guidance, digital assets such as bitcoin are classified as property. That means every time someone uses bitcoin to pay for something — whether a car or a cup of coffee — it creates a taxable event that must be tracked and reported as a capital gain or loss.
The report concludes that this framework is incompatible with bitcoin’s intended role as a medium of exchange and instead nudges people toward long-term holding behavior.
Bitcoin payments seen as “unfeasible” under current tax law
Every payment triggers capital gains reporting
Research fellow Anthony, who authored the report, said that each transaction involving bitcoin triggers capital gains reporting requirements and multiple filing obligations.
For every payment, users must record:
- when the asset was acquired
- the cost basis (original purchase price)
- the value at the time it was spent or disposed of
Those details must then be entered on IRS forms such as Form 8949. For people who use bitcoin regularly, the cumulative paperwork can be extensive.
One analysis cited in the report estimated that someone making a single digital currency purchase every day could end up preparing more than 100 pages of tax documents, with Form 8949 alone potentially stretching beyond 70 pages for a single year.
Rules discourage spending and favor long-term holding
The institute argues that the capital gains structure encourages people to hold digital assets rather than use them in transactions.
Because favorable long-term capital gains rates apply when assets are held for more than a year, the tax code incentivizes behavior more consistent with long-term speculation than with day-to-day spending.
The report calls this treatment “inconsistent” with bitcoin’s positioning as a peer-to-peer payment system, and says it erects a tax barrier to its wider use in commerce.
Proposals: exemptions and de minimis thresholds
To reduce the burden, the report outlines several policy options, including:
- eliminating capital gains taxes for certain digital payments
- introducing limited exemptions for small transactions
- establishing a de minimis threshold that would remove minor purchases from tax calculations
Anthony pointed to the existing Virtual Currency Tax Fairness Act, which would exclude capital gains under $200 from taxation. However, he questioned whether that threshold would be sufficient to cover typical consumer spending patterns, particularly as prices and transaction sizes fluctuate.
Legislative efforts in Washington
Lawmakers are considering multiple approaches to lighten the load on those using digital assets for payments.
In late March 2026, members of Congress reintroduced the Digital Asset Protection, Accountability, Regulation, Innovation, Taxation and Yields (PARITY) Act. The bill again raises the possibility of exempting small gains from reporting requirements.
The current draft has drawn criticism, including concerns that its de minimis exception could be limited to stablecoins rather than covering a broader range of digital assets like bitcoin. The bill’s fate remains tied to wider negotiations over digital asset regulation and taxation in Congress.
Expanding IRS reporting and tighter compliance
The debate is unfolding during the U.S. tax season, as new reporting rules for digital assets begin to bite.
In recent years, the IRS has expanded disclosure obligations, demanding more detailed information about digital asset activity. Under new regulations:
- brokers must report gross proceeds for all digital asset transactions occurring on or after January 1, 2025
- beginning January 1, 2026, those same entities will also have to report cost basis information for digital asset transactions
In addition, market participants will start receiving a new document, Form 1099-DA, from exchanges and other brokers. The form will detail gross proceeds from digital asset trades and disposals during the year.
These steps add another layer of scrutiny and documentation to an already complex reporting landscape, with the institute warning that, for now, anyone using bitcoin or similar assets in daily life must keep “diligent and exhaustive” records of all 2025 activity.
Use grows despite tax friction
The institute’s critique comes even as use of digital assets in commerce continues to expand.
A January 2026 report from PayPal and the National Cryptocurrency Association found that 39% of U.S. merchants had implemented some form of cryptocurrency payment option. Another study from the same month said cryptocurrency payment acceptance among American small businesses had climbed back to 19%.
The research group argues that this growing demand is colliding with an increasingly burdensome tax regime, creating a widening gap between technological capabilities and the legal framework that governs them.
Administration signals openness to small-transaction relief
Federal officials have signaled some willingness to adjust course. The current administration has indicated it is open to examining a small-transaction exemption and to continuing reviews of how digital asset payments are regulated and taxed.
For now, though, the IRS’s property classification remains in force, meaning that every bitcoin payment — from major purchases to daily beverages — is still treated as a taxable event that must be calculated and, in many cases, reported to the government.
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