Key Points
- The proposed CLARITY Act would allocate regulatory jurisdiction over digital assets between the CFTC and SEC, giving the CFTC exclusive jurisdiction over spot markets in “digital commodities.” That could have implications for their treatment under the Internal Revenue Code.
- Because they would fall within the CFTC’s jurisdiction, digital commodities as a class may qualify for the trading safe harbor under Section 864(b)(2)(B) of the Code, including tokens that are not actually traded on a CFTC-regulated exchange.
- Under Section 475 of the Code, if a digital commodity is a “commodity” due to CFTC jurisdiction under the CLARITY Act and is “actively traded” on an “established financial market,” it may qualify for mark-to-market eligibility for traders.
- Another recently proposed bill, the PARITY Act, would address these issues more directly by creating a digital asset trading safe harbor and extending mark-to-market treatment to dealers and traders in actively traded digital assets, among other things.
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On May 14, 2026, the Senate Committee on Banking, Housing and Urban Affairs approved the Digital Asset Market Clarity Act (CLARITY Act). Although this clears the way for the bill to advance to a full Senate vote, considerable debate remains over the right-to-pay-rewards on stablecoin balances and conflict-of-interest language.
If enacted, the bill would divide jurisdiction over certain digital assets between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC):
- The CFTC would have exclusive jurisdiction over spot markets in “digital commodities,”1 a broad category of digital assets that are intrinsically linked to a blockchain system.
- The SEC’s jurisdiction would extend to “investment contract assets.”
While the CLARITY Act is not tax legislation, granting exclusive jurisdiction over digital commodities to the CFTC could support the treatment of digital assets as commodities under the Internal Revenue Code (Code), especially given the still-evolving landscape of guidance on the taxation of digital assets.
As discussed below, a separate tax bill — the bipartisan Digital Asset Protection, Accountability, Regulation, Innovation, Taxation and Yields Act (PARITY Act) — was introduced in the House on May 19, 2026, to address many of these open questions directly, but its path to enactment is uncertain.
Unless and until the PARITY Act passes, taxpayers will face continued uncertainty regarding the tax treatment of digital assets, but the CLARITY Act may inform how the current Code applies to such assets.
Tax Implications of CFTC Jurisdiction
The CFTC’s expanded jurisdiction under the CLARITY Act is relevant to two Code provisions that apply to commodities:
- Section 864(b)(2)(B) establishes a safe harbor that permits non-U.S. persons to trade commodities (but not as dealers) in the U.S. without becoming subject to net basis U.S. federal income tax, provided certain conditions are met.
- Section 475 allows dealers and traders in commodities to elect to mark their commodities to market, effectively converting gains and losses from sales of commodities to ordinary from capital and exempting the taxpayer from capital loss limitations and the wash sale rules.
CFTC jurisdiction over spot markets in digital commodities might suggest that the digital assets traded thereon would be treated as commodities for federal income tax purposes, but whether the Internal Revenue Service (IRS) would defer to CFTC jurisdiction and treat digital commodities as commodities is untested. Even assuming the IRS does so for purposes of Sections 864(b)(2)(B) and 475, that might not resolve all open questions.
One of the conditions to qualify for the Section 864(b)(2)(B) safe harbor is that the commodities traded must be “of a kind customarily dealt in on an organized exchange” (emphasis added). The IRS has historically interpreted the “of a kind” standard broadly, not requiring the particular commodity or contract to actually be traded on an organized exchange, so long as commodities of the same general type were traded on an organized exchange.
Accordingly, if the CLARITY Act’s grant of CFTC jurisdiction over spot markets in digital commodities is respected for tax purposes, the Section 864(b)(2)(B) safe harbor would likely be available for trading in digital commodities generally, including tokens that are not themselves traded on a CFTC-regulated exchange.
By contrast, eligibility for Section 475 mark-to-market treatment is less flexible. To qualify, the commodity itself must be “actively traded” on an “established financial market.” While the CLARITY Act may aid in establishing that a particular asset is a “commodity” for this purpose, the asset must still satisfy the active trading requirement. This determination must be made token by token, rather than by reference to the broader “digital commodity” asset class.
Currently, futures contracts over nine cryptocurrencies trade on the CFTC-regulated Chicago Mercantile Exchange: bitcoin, ethereum, solana, XRP, cardano, chainlink, stellar, avalanche and sui (the latter two of which were added in late May 2026).
Leveraged spot contracts over these and other tokens are also currently traded on Bitnomial Exchange, LLC’s CFTC-regulated derivatives exchange. These tokens may be “actively traded,” but newer or thinly traded tokens may not.
Thus, even if the CLARITY Act is enacted as currently drafted, its impact on the applicability of Section 475 is likely to be less far-reaching than its implications for Section 864(b)(2)(B).
Looking Ahead: The PARITY Act
While the CLARITY Act does not conclusively resolve questions regarding the above-referenced provisions’ application to digital assets, the PARITY Act would. The PARITY Act is a reflection of bipartisan lawmakers’ agreement that current tax rules for digital assets are inadequate. The bill would, among other things, add a new trading safe harbor for digital assets and expand the scope of the mark-to-market election to include dealers and traders in “actively traded digital assets.”
Interested taxpayers should therefore monitor and remain active in the legislative process as the bill makes its way through both chambers.
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1 Under the bill, “digital commodities” do not include derivative contracts (such as futures, forwards, options and swaps) whose underlying assets are digital commodities, and therefore jurisdiction over such contracts is determined under existing regulatory regimes.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.