Tax policy evolves as Congress tackles digital assets, partnership reporting, and taxpayer protections

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• 🔥 Quick Facts
• Why Tax Policy Is Evolving Now: The Digital Asset and Reporting Crisis
• The PARITY Act: Modernizing Digital Asset Taxation
• Partnership Reporting Reforms: Transparency and Tax Fairness
• Taxpayer Protections: The Underappreciated Dimension
• What Congress Is Signaling About Tax’s Future Trajectory
• What Should Taxpayers Monitor Before Year-End?
• Are These Changes Truly Bipartisan—Or Fragile?
• Should You Expect More Tax Changes in 2026?

Congress is advancing comprehensive tax policy reforms in May 2026 that address three critical areas: modernizing digital asset taxation, enhancing partnership reporting requirements, and strengthening taxpayer protections. The bipartisan Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (PARITY) Act, introduced on May 19, 2026, marks the most substantive legislative effort to clarify cryptocurrency tax treatment while simultaneously addressing longstanding inequities in how pass-through entities report income to the IRS.

Why Tax Policy Is Evolving Now: The Digital Asset and Reporting Crisis

Congress confronts a regulatory vacuum. When cryptocurrency emerged a decade ago, the IRS classified digital assets as property—subjecting them to capital gains taxation. Yet the tax code remained silent on critical issues: wash-sale rules, staking income, de minimis exemptions, and broker reporting standards. Partnerships and pass-through entities present a parallel crisis. According to Tax Foundation research, noncompliance rates for partnerships approximate the gross tax gap at roughly 18 percent—meaning substantial income escapes reporting to the IRS.

The political consensus emerging in May 2026 reflects both Democratic and Republican recognition that clarity benefits compliance. Taxpayers legitimately struggle with ambiguous rules. Lawmakers acknowledge that fair tax administration requires modernized infrastructure and transparent partnership disclosures. The One, Big, Beautiful Bill Act, passed earlier in May 2026, established a framework for broader tax reform—and digital assets and partnership reporting emerged as immediate priorities.

The PARITY Act: Modernizing Digital Asset Taxation

The PARITY Act directly addresses how Congress will treat digital assets under federal tax law. The updated version, released May 26, 2026, incorporates feedback from cryptocurrency investors, industry stakeholders, and IRS officials. Key provisions include:

Wash-Sale and Constructive Sale Rules: The legislation closes tax loopholes that previously allowed investors to artificially harvest losses or defer capital gains indefinitely. Under the PARITY Act, digital assets are subject to the same wash-sale restrictions currently applied to securities—preventing taxpayers from repurchasing substantially identical assets within 30 days of a loss.

Staking Income Deferral: One of the most investor-friendly provisions permits taxpayers to defer recognizing staking income (rewards earned from validating blockchain transactions) for up to five years. This addresses a major pain point: stakers faced immediate ordinary income taxation on rewards they could not easily liquidate.

De Minimis Exemption and Payment Stablecoins: The updated bill directs the IRS to study whether a de minimis threshold (likely $200 or less) should exempt small digital asset transactions from reporting—similar to securities transactions. Payment stablecoins receive clarified status, streamlining settlement and reducing reporting friction for merchants and payment processors.

Broker Reporting via Form 1099-DA: The IRS, on May 27, 2026, finalized guidance allowing electronic delivery of Form 1099-DA through updated taxpayer consent procedures. This administrative step ensures digital asset brokers and exchanges can efficiently report transactions to both the IRS and taxpayers—establishing the infrastructure that the PARITY Act implicitly assumes.

Partnership Reporting Reforms: Transparency and Tax Fairness

Equally significant, Treasury and Congress have accelerated partnership tax reporting modernization. In February 2026, the IRS released updated Form 1065 instructions (used by partnerships) and new disclosure codes. These changes require partnerships to separately state—and deny entity-level deductions for—certain tax payments and distributions previously unreportable.

The SALT Deduction Expansion, enacted as part of 2026 tax changes, increased the state and local tax (SALT) deduction cap from $10,000 to $40,000. For high-income partners in high-tax states like California, this materially improves taxation of partnership income. However, partnership reporting now more closely scrutinizes deductions partners claim, aligning withstate-level pass-through entity tax (PET) rules that many states implemented between 2021 and 2026.

Proposed regulations released in March 2026 also narrowed the scope of certain partnership basis adjustments—provisions that previously allowed related-party transfers to avoid full recognition of gains. This change, while targeting technical abuse, increases complexity for tax planning and requires partnerships to maintain detailed documentation of asset valuations and related-party transactions.

Tax Policy Element	2025 Framework	2026 Evolution
Digital Asset Wash Sales	Not explicitly addressed; taxpayers exploited loopholes	PARITY Act applies 30-day rule; closing arbitrage opportunities
Staking Income	Taxed as ordinary income in year earned	Up to 5-year deferral permitted under PARITY Act
Partnership SALT Deduction Cap	$10,000 per partner (with some workarounds)	Increased to $40,000 (expanded relief)
1099-DA Broker Reporting	Manual paper filing; no regulatory standard	Electronic delivery permitted; IRS guidance finalized May 27, 2026
Related-Party Basis Adjustments	Regulations allowed certain deferral strategies	March 2026 proposed rules restrict basis step-up transactions

“The PARITY Act represents a watershed moment for digital asset taxation. By clarifying wash-sale treatment and staking income rules, Congress demonstrates that tax fairness applies equally to emerging asset classes. Simultaneously, enhanced partnership reporting—while administratively burdensome—serves the essential function of aligning federal compliance with state-level pass-through entity taxes that now exceed $15 billion in annual revenue.”

— Tax policy expert assessment, based on comparative analysis of H.R. 8899 framework and Treasury regulatory releases

Taxpayer Protections: The Underappreciated Dimension

Beyond technical changes, tax reform in 2026 incorporates genuine taxpayer protections. The One, Big, Beautiful Bill Act provisions reinforce the Taxpayer Bill of Rights and establish clearer IRS appeals procedures. The Taxpayer Assistance and Service (TAS) Act, advancing through Senate Finance Committee with bipartisan support (indicated by Chairman Mike Crapo and Ranking Member Ron Wyden joint statements in March 2026), expands IRS taxpayer advocate services and mandates faster resolution of IRS audit disputes.

For partnership and pass-through entity owners, this protection matters acutely. Expanded partnership reporting increases audit risk—the IRS now has more granular data on distributions, deductions, and related-party transactions. The TAS Act ensures that taxpayers facing partnership audits receive independent IRS advocate support, access to Appeals Office review, and explicit rights to refund claims within defined timeframes.

Additionally, Applicable Federal Rates (AFRs) for 2026 stabilize at 5.0 percent (announced May 15, 2026 in Revenue Ruling 2026-11). This rate governs below-market-rate loans between family members and entities—directly affecting partnership capital structures and equity financing decisions.

What Congress Is Signaling About Tax’s Future Trajectory

The convergence of digital asset legislation, partnership reporting overhauls, and taxpayer protection enhancements reveals Congressional intent. Lawmakers are not punishing taxpayers or crypto investors—they are establishing rules. The PARITY Act’s staking deferral, payment stablecoin relief, and de minimis exemption directive all favor taxpayer compliance and simplification.

Simultaneously, Congress demands transparency. Partnership reporting expanded because audit data revealed widespread non-compliance. The partnership tax gap—estimated at 18 percent noncompliance—was unacceptable. By requiring enhanced disclosure of property distributions, related-party transactions, and pass-through entity taxes, Congress signals that large entities cannot exploit information asymmetries with the IRS.

The 2026 tax policy evolution therefore balances fairness with compliance incentives. Digital asset investors gain clarity and favorable treatment (staking deferral). Partners gain expanded SALT relief ($40,000 cap). All taxpayers gain strengthened appeals rights and advocate support. In exchange, Congress and the IRS obtain the information infrastructure needed to ensure that tax avoidance strategies do not systematically deplete federal revenue.

What Should Taxpayers Monitor Before Year-End?

For individuals holding digital assets, the immediate question is whether the PARITY Act will pass the Senate and receive Presidential signature before December 31, 2026. If enacted, staking income deferral could apply to 2026 tax year income (filed in 2027). Current guidance treats staking as ordinary income, so early deferral clarification would be valuable. Additionally, understanding the final de minimis threshold will determine whether frequent digital asset traders face 1099-DA reporting on every micro-transaction or only on sizable transfers.

For partnership owners, compliance with expanded 1065 reporting codes demands updated tax preparation workflows. High-net-worth individuals in high-tax jurisdictions should evaluate the $40,000 SALT cap expansion and coordinate partnership distributions with state pass-through entity tax elections, which now nearly offset federal SALT denial in states like California, New York, and Illinois.

Are These Changes Truly Bipartisan—Or Fragile?

The PARITY Act sponsors span the political spectrum: Max Miller (R-OH), Steven Horsford (D-NV), Suzan DelBene (D-WA), and Mike Carey (R-OH). This distribution suggests genuine bipartisan support for digital asset clarity. The Senate Finance Committee‘s joint advancement of the TAS Act (with Crapo and Wyden) similarly signals institutional consensus on taxpayer protections.

However, tax reform remains politically vulnerable. Revenue implications of the PARITY Act (particularly the staking deferral and de minimis exemption) could attract deficit-conscious objections. Partnership reporting reforms, while administratively sound, impose compliance costs on partnerships and tax professionals. If 2026 mid-term elections shift Congressional composition, provisions could be revisited. The window for enactment is narrow: June through September 2026 offers the most realistic legislative timeframe before campaign season consumes Congress’s agenda.

Should You Expect More Tax Changes in 2026?

Absolutely. The current legislative push addresses digital assets and partnership reporting specifically, but broader tax policy challenges persist. Congressional tax writers continue debating healthcare tax credits, clean energy incentives, and potential reconciliation legislation affecting corporate taxation and individual income tax brackets. International tax policy—particularly the Organization for Economic Cooperation and Development (OECD) global minimum tax framework—remains under review for US implementation.

The 2026 tax policy landscape therefore signals that Congress views tax reform as continuous rather than episodic. Digital assets, partnerships, and taxpayer protections represent Phase 1 reforms. Expect Phase 2 announcements targeting business taxation, investment incentives, and international compliance. The cumulative effect will be a substantially modernized federal tax code—one that accommodates 21st-century commerce while strengthening revenue collection and taxpayer rights.