It seems like the IRS is trying to speculatively tax unrealized future profits here, and that's pretty unconscionable.
We once started a revolution over unfair taxation. I sadly think the same will be necessary to fix the status quo, as system has rotted past the point of meaningful reform.
On top of that, the necessity of shoehorning everyone's economic activity into prescriptive taxonomies in order to implement this taxation has drastically diminished innovation on the margin, and has created unintended consequences that significantly distort market incentives and diminish our ability to adapt to change, with the situation we're discussing here being a prime example.
I'm worried that you're right; that it's beyond repair, and that we may have to live through a systemic collapse before things can get better.