Trump’s Big Crypto Report Is Coming. It Should Address Block Rewards and Privacy.
The upcoming Executive Order report is a chance to fix broken tax treatment of block rewards and walk back dangerous surveillance proposals.
President Trump’s Executive Order on digital assets (EO 14178) directed the agency heads sitting on the President’s Working Group on Digital Asset Markets to produce a report reevaluating outdated or unworkable policies that hinder responsible innovation in crypto. As the Treasury Department contributes to that report, it has an opportunity—and a responsibility—to address some of the most damaging missteps in crypto policy, particularly those stemming from IRS guidance and FinCEN rulemaking.
Two issues are especially ripe for reconsideration:
Taxing Block Rewards as “Income” Makes No Sense
For more than a decade, the IRS has taken the position that block rewards—newly created tokens earned by miners or validators for maintaining a network—should be taxed as ordinary income at the moment of creation. That view, formalized in Revenue Ruling 2023-14 and IRS Notice 2014-21, fundamentally misunderstands the nature of block rewards.
Block rewards aren’t income received from a third party. They’re new property created by participants in an open network. Taxing them as income at creation rather than property at disposition creates perverse results: phantom income, unjustified ordinary tax rates, and a chilling effect on decentralized innovation in the U.S. This approach isn’t supported by longstanding tax principles and should be reversed.
Yesterday, I testified before the House Ways and Means Oversight Subcommittee during a hearing titled “Making America the Crypto Capital of the World: Ensuring Digital Asset Policy Built for the 21st Century.” My remarks emphasized that block rewards should be treated the same as other forms of newly created property. We don’t tax a farmer the moment crops grow in the field or an author at the moment they finish a manuscript. We tax income when property is sold or exchanged for something of value. Block rewards should be no different. Treasury should use the opportunity created under EO 14178 to correct this mismatch and restore parity.
Coin Center is supporting the Jarrett lawsuit in the Sixth Circuit, which challenges the IRS’s position that block rewards are taxable upon creation.
Surveillance of Everyday Users Is Not “Pro-Crypto” Policy
Treasury’s October 2023 proposal on cryptocurrency mixers takes an alarmingly broad view of who should be subject to financial surveillance. This proposed rule would designate all mixing transactions as a “primary money laundering concern” and require financial institutions to report information on each of their customers who had any direct or indirect connection with a mixer. If finalized in its current form, the rule would sweep in ordinary users of cryptocurrencies who engage in privacy-preserving behavior, like avoiding address reuse or using basic tools to protect transaction data.
These behaviors are not inherently suspicious; they are essential to personal financial privacy in a public ledger environment. Treating them as presumptively illicit contradicts both civil liberties and the EO’s directive to foster responsible innovation.
Coin Center submitted a comment letter in response to this proposed rule back in January 2024. We argued that FinCEN’s proposed rule would subject even purely domestic transactions to severe collateral consequences like account closures, despite FinCEN’s own admission that it cannot determine whether such transactions are foreign or illicit. The rule circumvents the statutory limits of the USA PATRIOT Act, which only authorizes such designations for transactions involving foreign jurisdictions, and it denies Americans due process by failing to offer any individualized notice or hearing before labeling their activities suspicious. This sweeping approach threatens both financial privacy and fundamental constitutional protections. The possibility remains that FinCEN may finalize this rule at any time. Treasury should either drop the rulemaking altogether or else issue a new NPRM with a substantially narrower class of covered activities.
The Moment to Fix This Is Now
Trump’s EO offers an opportunity for Treasury to set things right—not just by calling out challenges, but by recommending action. Treasury should:
- Revisit and rescind outdated guidance on block rewards.
- Direct FinCEN to drop or narrow its rulemaking to avoid criminalizing ordinary user privacy.
These aren’t radical ideas. They are simple fixes rooted in fairness, functionality, and fidelity to established legal principles. Getting them right will protect users, promote clarity, and preserve America’s leadership in digital asset innovation.