Mark to market election

(a) In general Section 475 of the Internal Revenue Code of 1986 is amended— (1) in subsection (d), by adding at the end the following new paragraphs: (4) Treatment of covered digital assets which are securities or commodities In the case of any covered digital asset which is a security or commodity (determined without regard to this paragraph), such covered digital asset shall not be treated as a security or commodity for purposes of subsections (b) through (g). (5) Adjustments attributable to mark to market treatment of securities, commodities, or covered digital assets In the case of an adjustment described in section 481(a) by reason of the application of subsection (a), (e), (f), or (g) of this section, the character of any income or loss with respect to any property as a result of such adjustment shall be the same as the character of the gain or loss which would have resulted from the sale of such property as of the close of the taxable year preceding the year of the change (within the meaning of section 481) under the method of accounting used for such preceding taxable year., (2) by redesignating subsection (g) as subsection (h), and (3) by inserting after subsection (f) the following new subsection: (g) Election of mark to market for dealers and traders in covered digital assets (1) Dealer in covered digital assets In the case of a dealer in covered digital assets who elects the application of this paragraph, this section shall apply to covered digital assets held by such dealer in the same manner as this section applies to securities held by a dealer in securities. (2) Trader in covered digital assets In the case of a person who is engaged in a trade or business as a trader in covered digital assets and who elects to have this paragraph apply to such trade or business as a trader in such assets, subsection (f)(1) shall apply to covered digital assets held by such trader in connection with such trade or business in the same manner as such subsection applies to securities held by a trader in securities. (3) Election and revocation An election under paragraph (1) or (2) may be made without the consent of the Secretary. An election, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. (4) Definitions For purposes of this subsection— (A) Covered digital asset The term covered digital asset means— (i) any traded digital asset, (ii) any qualified U.S. dollar stablecoin, (iii) any notional principal contract with respect to any traded digital asset, (iv) any evidence of an interest in, or derivative financial instrument in, any traded digital asset or any notional principal contract described in clause (iii), including any option, forward contract, futures contract, short position, or similar financial instrument, and (v) any position which— (I) is not described in clause (i), (ii), (iii), or (iv), (II) is a hedge with respect to any item described in clause (i), (ii), (iii), or (iv), and (III) is clearly identified in the taxpayer's records as being described in this clause before the close of the day on which it was acquired or entered into (or such other time as the Secretary may by regulations prescribe). (B) Dealer in covered digital assets The term dealer in covered digital assets means a taxpayer which— (i) regularly purchases covered digital assets from, or sells covered digital assets to, customers in the ordinary course of a trade or business, or (ii) regularly offers to enter into, assume, offset, assign, or otherwise terminate positions in covered digital assets with customers in the ordinary course of a trade or business. (5) Regulations and guidance The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subsection, including rules to coordinate this subsection with the treatment under this section of a covered digital asset that is also a security or commodity.. (b) Application to first taxable year In the case of any taxpayer who makes an election under paragraph (1) or (2) of subsection (g) of section 475 of the Internal Revenue Code of 1986 (as added by subsection (a)) with respect to the first taxable year beginning after the date of enactment of this Act— (1) any identification required pursuant to the application of such subsection with respect to covered digital assets held on the first day of such taxable year shall be treated as timely made if made on or before the 30th day of such taxable year, and (2) the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of such Code by reason of the application of such subsection shall be taken into account ratably over the 4-taxable year period beginning with such taxable year. (c) Treatment as specified service trade or business Section 199A(d)(2)(B) of the Internal Revenue Code of 1986 is amended by striking or commodities (as defined in section 475(e)(2)) and inserting commodities (as defined in section 475(e)(2)), traded digital assets, or covered digital assets (as defined in section 475(g)(4)(A)). (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2026.