This morning, credit card giant Visa issued a press release about allowing US card issuers to settle directly with Visa using Circle USD (USDC).
Nowhere in this glowing release, amplified by Circle CEO Jeremy Allaire, did Visa mention the tax nightmare that will accompany that roll-out.
Specifically, any US bank or fintech company that receives USDC instead of dollars will need to maintain and file with the Internal Revenue Service (IRS) timestamped records of every transaction so that it can itemise its cost basis for all sales.
The first two banks that have agreed to accept USDC settlements are Cross River Bank and Lead Bank, with Visa and Circle planning to roll out “broader availability” across the US in 2026.
It’s unclear whether USDC settlements will occur intraday or once daily, with each stablecoin-denominated transaction reportable on tax forms with its cost basis, at sale.
Although Visa or Circle might assist in preparing some of these records, the ultimate responsibility is on the tax filer to report accurate information — and pay all taxes.
Stablecoins are taxable digital assets
On its most popular instruction form for US tax filers, the IRS defines digital assets as “any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology,” specifying stablecoins as digital assets.
Elsewhere, the IRS specifies unambiguously. “Common digital assets include convertible virtual currency and cryptocurrency, and stablecoins.” In other words, just because a digital asset claims to be worth $1 does not exempt it from US tax reporting requirements.
The most obvious reason that stablecoins are taxable assets is that stablecoins sometimes do not trade at $1.
Indeed, Protos has compiled a history of every time the world’s largest stablecoin, USDT, deviated from its peg, including trades as low as $0.001 and as high as $1,000. Unsurprisingly, the stablecoin has also never been audited.
Multi-billion dollar projects like Terra, Fei, and Iron collapsed entirely, wiping out supposedly stable holdings for untold numbers of taxpayers.
Other stablecoins have fluctuated wildly during their existence, such as DAI’s $0.88-$1.22 trading range, USDE’s $0.93-$1.03 range, or TUSD’s $0.88-$1.62 range.
Did Visa forget that USDC isn’t always worth $1?
USDC itself has traded in the $0.80s before the US government bailed out its reserves. Obviously, any taxpayer who enjoys a capital gain from the $0.80s to $1 needs to file their taxes appropriately, even if the asset is a stablecoin.
Read more: Coinbase allegedly offered Circle $3B lifeline during USDC depeg
Of course, Visa and Circle will be quick to provide assistance to companies that adopt USDC settlement. After all, Circle is a $20 billion company partnered with Coinbase, a $67 billion company, and as such has every motivation to incentivize adoption.
If tax filings are the proverbial stick, the carrot of the arrangement is a settlement extension to seven instead of five days per week.
In addition to “modernized liquidity” and other ambiguous value propositions like “interoperability” and “stablecoin innovation” that Visa talked up it its press release, the tangible benefit for companies that choose to settle in USDC is weekend settlement of funds.
Whether two extra days of settlement is worth the tax hassle will be visible in subsequent adoption metrics of Circle’s new partnership with Visa — if they ever choose to publish those statistics.
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The post Tons of tax docs awaiting Visa card issuers settling in USDC appeared first on Protos.
