Source rules for digital asset validation activities

(a) In general Section 863 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (f) Special rules for income from validation of digital assets (1) In general Except as provided in paragraph (2) or in regulations, any income derived from digital asset validation supporting activities— (A) if derived by a United States person, shall be sourced in the United States, and (B) if derived by a person other than a United States person, shall be sourced outside the United States. (2) Treatment of branches (A) Foreign branches Except as provided in regulations, in the case of a United States person with a qualified business unit (as defined in section 989(a)) in a foreign country, income described in paragraph (1) that constitutes business profits attributable to such unit shall be sourced outside the United States. (B) U.S. branches Excepts as provided in regulations, in the case of a person that is not a United States person and that maintains an office or other fixed place of business in the United States, income described in paragraph (1) attributable to such office or other fixed place of business shall be sourced in the United States. (C) Attribution For purposes of subparagraphs (A) and (B), the Secretary shall issue such regulations or other guidance as the Secretary determines necessary or appropriate for purposes of determining the amount of business profits attributable to a qualified business unit or office or other fixed place of business. (3) Special rules for mining (A) Certain amounts treated as income For purposes of paragraph (1)— (i) In general Except as provided in clause (ii), any amounts received (including amounts received as digital assets or transaction fees) directly through a mining pool or similar arrangement as a result of the taxpayer’s performance of, or contribution of computing power to, mining shall be treated as income derived from digital asset validation supporting activities. (ii) Exclusion Compensation received for providing services to another person for services related to mining (including hosting and equipment management services) shall not be treated as income derived from digital asset validation supporting activities. (B) Rules for attribution to branches The Secretary shall prescribe rules for the purposes of determining whether, and to what extent, income derived from mining is attributable to a qualified business unit or an office or other fixed place of business under paragraph (2). Such rules shall take into account— (i) the location and relative contribution of the computing equipment used in the mining activity, (ii) the location of personnel performing functions with respect to the operation, management, or maintenance of such equipment, and (iii) such other functions, assets, risks, or other factors as the Secretary determines necessary or appropriate. (4) Treatment of partnerships In the case of a partnership, except as otherwise provided by the Secretary in regulations or other guidance, this subsection shall be applied at the partner level.. (b) Effective date The amendment made by this section shall apply to income derived after the date of the enactment of this Act. (c) No inference The amendments made by this section shall not be construed to create any inference with respect to whether, or the time at which, a digital asset created, issued, acquired, or received in connection with digital asset validation activity (as defined in section 7701(q), as added by this Act) is includible in gross income.