S. 5616 — ADAPT Act

This section provides the short title of the Act as the Aligning Digital Assets with Principles of Taxation Act or the ADAPT Act.

This section provides nonrecognition of gain or loss on the sale, exchange, or disposition of covered payment stablecoins to purchase products or services after December 31, 2026. It defines a covered payment stablecoin as a qualified U.S. dollar stablecoin identified in quarterly Treasury reports as actively traded within 3 percent of $1.00 during the prior 12 months and acquired by the taxpayer within 3 percent of $1.00, excludes traders, brokers, dealers, and taxpayers using a non-dollar functional currency, requires recordkeeping to distinguish eligible transactions, and exempts such transactions from broker information reporting under section 6045.

This section establishes a mark-to-market election for dealers and traders in covered digital assets, applying the same treatment as for securities. Covered digital assets include traded digital assets, qualified U.S. dollar stablecoins, notional principal contracts, derivatives, and identified hedges. A dealer regularly purchases from or sells to customers in the ordinary course of business. The election applies without Secretary consent for the taxable year made and all subsequent years unless revoked with consent. For elections in the first taxable year beginning after December 31, 2026, identifications are timely if made within 30 days and net section 481 adjustments are taken into account ratably over four years. It also classifies such trading activity as a specified service trade or business under section 199A.

This section establishes source rules for income from digital asset validation supporting activities. US persons source such income in the United States, while non-US persons source it outside the United States. Foreign branches of US persons source attributable business profits outside the United States, and US branches of non-US persons source attributable income in the United States. Mining income received through pools or similar arrangements counts as validation income, but compensation for hosting or equipment management services does not. The rules apply at the partner level for partnerships and take effect for income derived after enactment.

This section excludes trading in traded digital assets from the definition of trade or business within the United States. Nonresident aliens and foreign entities may trade such assets for their own account through resident brokers, custodians, or staking providers without triggering U.S. tax jurisdiction on that activity, effective for taxable years beginning after December 31, 2026.

This section expands nonrecognition treatment under section 1058 of the Internal Revenue Code to transfers of traded digital assets under lending agreements that meet the same requirements as securities loans. It requires such agreements to account for protocol distributions, staking rewards, transaction fees, priority fees, and tips. It applies parallel rules to payments received by tax-exempt organizations with respect to applicable asset loans. The changes take effect for transfers after the date of enactment.

This section extends the wash sale loss disallowance rules of section 1091 to traded digital assets other than qualified U.S. dollar stablecoins. It defines specified assets to include stocks, securities, and such digital assets; treats economically equivalent tokenized or bridged digital assets as substantially identical; and provides exceptions for digital assets acquired in validation activities or as ordinary income and for mark-to-market positions under section 475. The changes apply to sales and dispositions after the date of enactment, except that pre-enactment digital asset acquisitions remain outside the rules and broker reporting changes take effect after December 31, 2027.

This section provides that certain powers held by trustees of covered digital asset investment trusts—including staking digital assets, using borrowing facilities for redemptions, and responding to technology changes—do not disqualify the trusts from investment trust treatment under the tax code. It also treats staking rewards, payments on applicable asset loans, and gains from digital assets as qualifying income for publicly traded partnerships, but excludes income from operating digital asset exchanges or similar financial services businesses. These rules apply to taxable years beginning after December 31, 2026, with an election available for earlier years for trusts.

This section applies the constructive sale rules to digital assets other than qualified U.S. dollar stablecoins, requiring taxpayers to recognize gain as if the position were sold at fair market value on the date of the constructive sale. It treats tokenized or bridged digital assets as substantially identical to economically equivalent stock, debt instruments, partnership interests, or widely traded digital assets. The rules apply to constructive sales after the date of enactment.

This section exempts charitable contributions of widely traded digital assets from qualified appraisal requirements under section 170(f)(11), except as the Secretary determines appropriate to prevent abuse. The change applies to taxable years beginning after December 31, 2026.

This section provides that no gain or loss is recognized on the disposition of a digital asset to pay transaction costs (including network fees) if the aggregate fair market value of such assets does not exceed $10. It excludes traders, brokers, dealers, and persons initiating more than 5,000 digital asset transactions in the prior year. It also exempts these dispositions from broker information reporting under section 6045 and from wash sale rules under section 1091.

This section excludes from unrelated business taxable income any income from qualified digital asset validation activity, along with directly connected deductions, when the tax-exempt organization does not substantially participate. It extends the exclusion to debt-financed property and requires the Treasury Secretary to issue implementing regulations. The changes apply to taxable years beginning after December 31, 2026.

This section excepts qualified U.S. dollar stablecoins from registration requirements for obligations under section 163(f). It permits disclosure statements for digital assets to appear in written terms or marketing materials and treats any digital asset without a fixed maturity date as maturing 25 years after issuance for purposes of the excise tax under section 4701. The amendments apply to taxable years ending after enactment, except the maturity rule applies only to assets issued after enactment.

This section directs the Secretary of the Treasury to issue regulations or other guidance within 12 months clarifying the tax treatment of reorganizations of applicable foreign entities as domestic corporations under subchapter C. It requires temporary safe harbors for entities organized before September 24, 2026, to complete such reorganizations promptly. Applicable foreign entities are those established in connection with decentralized autonomous organizations as foreign foundations or similar non-profit structures.

This section defines digital asset, digital asset transaction, digital asset validation supporting activities, mining, staking, staking reward, bridged digital asset, receipt token, reference digital asset, and qualified U.S. dollar stablecoin for purposes of the Internal Revenue Code.