Bitcoin Tax Bill: Pay the IRS in BTC Without Capital Gains on the Payment

What Davidson’s office said the proposal would do

Davidson’s office said the bill would allow taxpayers to pay federal taxes in bitcoin and direct those payments into the Strategic Bitcoin Reserve.

Davidson framed the measure as a way to expand payment options and build bitcoin holdings without buying on the open market, in remarks released with the bill announcement.

What is still unclear from the public releases

The releases did not spell out how the Internal Revenue Service would accept bitcoin payments, including how an exchange rate would be set at the time of payment and what rails would be used to settle the transaction.

It was also not clear whether the proposal covers all federal tax types or only certain categories.

Why paying in bitcoin can create a taxable event today

Under current IRS guidance, virtual currency is treated as property, which means spending or transferring it can create a gain or loss that must be reported, depending on your cost basis, according to the IRS virtual currency guidance.

That tax treatment is one reason crypto payments have often been routed through intermediaries that convert assets into dollars at checkout.

What supporters say the bill changes, and what it does not

The Bitcoin Policy Institute said the act would let Americans pay federal taxes in bitcoin “without incurring capital gains liability,” and Cointelegraph reported that BTC transferred to the U.S. government for tax payments would not be subject to capital gains and would not be recorded as a gain or loss for the payer.

That framing is narrower than viral claims that the U.S. is scrapping capital gains taxes on bitcoin broadly. The public releases focus on a carve-out tied to tax payments, and they do not describe changes to capital gains taxes for sales, swaps, or other transfers.

Year-end bitcoin losses: how tax-loss harvesting enters the conversation

Year-end price swings can leave some investors underwater on positions opened earlier in the year or near recent highs. In that situation, some taxpayers sell in December to realize a capital loss on paper before the tax year closes.

In the U.S., capital losses can offset capital gains, and if losses exceed gains, taxpayers may be able to deduct a limited amount against ordinary income and carry the rest forward, according to IRS Topic 409.

Some traders later re-enter the position to keep bitcoin exposure, including in early January, which is often described as tax-loss harvesting. The tax benefit depends on a taxpayer’s realized gains, holding periods, and records, and it does not remove market risk.

The 30-day chart showed bitcoin traded near $93,619 at its high and near $87,320 late Dec. 27. A buyer near that high would be down about 7% on paper at the later price.

In practice, tax-loss harvesting can look like realizing a loss to offset gains elsewhere, then buying back later to restore exposure. That can reduce current-year taxes for some investors, though fees and rapid price moves can narrow or erase the benefit.

The wash-sale question and what could change

For stocks and securities, the wash-sale rule can disallow a loss when a taxpayer sells at a loss and buys a substantially identical security within 30 days, according to IRS Publication 550.

The IRS treats virtual currency as property. It was not immediately clear whether lawmakers will seek to extend wash-sale treatment to bitcoin in future tax legislation or whether any language would be tied to bills like the Bitcoin for America Act.

This article is not tax advice.

A budget-neutral approach to building reserves

Backers described the proposal as a way for the U.S. to build bitcoin holdings through tax payments rather than direct market purchases.

Bitcoin Policy Institute strategist Conner Brown said the structure would let Americans “voluntarily contribute Bitcoin through their tax payments,” a model the group described as market-driven accumulation.

Open questions: custody, settlement, and governance

The public releases did not state which agency would custody the bitcoin, what internal controls would govern transfers, or how the government would handle refunds, amended returns, or payment reversals.

It was not immediately clear whether the proposal is limited to bitcoin or whether other digital assets could qualify.

Colorado routes crypto payments through PayPal

Colorado’s Department of Revenue said it began accepting cryptocurrency for state taxes on Sept. 1, 2022 via the PayPal Cryptocurrencies Hub, using the state’s Revenue Online portal, according to the department’s guidance.

The state said crypto is converted to dollars and remitted to the department to complete the transaction, with fees of $1 plus 1.83% of the payment amount.

Federal acceptance would raise different design questions

The Bitcoin for America Act releases describe routing tax-paid bitcoin into a Strategic Bitcoin Reserve, which points toward holding BTC rather than converting immediately.

That shift would put more weight on custody, auditing, and operational design at the federal level, and those details were not disclosed in the initial announcements.

Catalysts that could move the story

Investors will likely look for publication of bill text, a bill number, and a committee referral as early signals of whether the proposal will get a hearing.

Treasury and IRS guidance on payment rails, pricing methodology, and reporting rules would also be key, since the promise of “no capital gains” rests on how a tax payment is defined in statute.

How this fits into the broader U.S. crypto policy calendar

The tax-payment proposal lands as lawmakers debate broader market structure and stablecoin rules.

For the wider policy timeline, see our guide US Crypto Regulation 2026 and our reporting on the House market structure push in CLARITY Act timeline slips to 2026.

For stablecoin rails and why payments policy keeps colliding with banking regulation, read GENIUS Act and the stablecoin market.