While the House is on Break, This Past Week the Senate Takes Up Two Bipartisan Crypto Bills
The House of Representatives is on August Break While the Senate is Working and Takes Up Two Bipartisan Crypto Bills
Yup, Nancy and her entourage are off to the Far East having visited Taiwan on Tuesday. The rest of her fellow Representatives are presumably in their home districts enjoying the time away from D.C.
Nonetheless, the Senate has been busy this past week taking up two bipartisan bills both relating to cryptocurrencies. We are talking about the Virtual Currency Tax Fairness Act of 2022 introduced by the bipartisan pair of Senators Pat Toomey (R-PA) and Kyrsten Sinema (D-AZ), and, the Digital Commodities Consumer Protection Act of 2022 introduced by Senators John Boozman (R-AK) and Debbie Stabenow (D-MI) [joined by Cory Booker (D-NJ) and John Thune (R-SD)]. Let's give a look into just what these two bills purport to accomplish.
The Virtual Currency Tax Fairness Act of 2022
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Toomey and Sinema's Virtual Currency Tax Fairness Act is an extremely specific piece of legislation, merely addressing only a few items. So, what does it propose to do?
The specific intent of this bill is clear: "to simplify the use of digital assets for everyday purchases. This bipartisan legislation exempts from taxation small personal transactions that use virtual currencies for goods and services" [Committee on Banking, Housing and Urban Affairs. Virtual Currency Tax Fairness Act Creates Tax Exemption for Small Personal Transactions. (Accessed August 4, 2022)].
Under current law, every time a digital asset is used, a taxable event occurs. For example, if an individual uses digital assets to purchase a cup of coffee, the individual would owe capital gains on the transaction if the digital asset appreciated in value—even if the asset appreciated by only a fraction of a penny. The Virtual Currency Tax Fairness Act would simplify the use of digital assets for everyday transactions by creating a sensible de minimis exemption for gains of less than $50 on personal transactions and for personal transactions under $50.
[Id].
Concerning this Bill, Senator Toomey stated: "While digital currencies have the potential to become an ordinary part of Americans’ everyday lives, our current tax code stands in the way. The Virtual Currency Tax Fairness Act will allow Americans to use cryptocurrencies more easily as an everyday method of payment by exempting from taxes small personal transactions like buying a cup of coffee" [Id]. Senator Sinema added: "We’re protecting Arizonans from surprise taxes on everyday digital payments, so as use of digital currencies increases, Arizonans can keep more of their own money in their pockets and continue to thrive" [Id].
[For access to a section-by-section breakdown of *The Virtual Currency Tax Fairness Act, click here
This bipartisan Bill has broad support within the cryptocurrency industry.
The bill introduced into the House in February would amend the Internal Revenue Code of 1986 to exclude purchases of up to $200 from reporting to the Internal Revenue Service (IRS). The Senate version, however, sets the upper limit of the tax exclusion on purchases at $50. The IRS has explicitly stated that it expects small transactions to be tracked and reported.
[Andersen, D. Senate Virtual Currency Tax Fairness companion bill drops purchase exclusion to $50. (Accessed August 4, 2022)].
"The Virtual Currency Tax Fairness Act bill is unlikely to receive consideration in the Senate before the Congressional holiday in August" [Coin3. Senate Virtual Currency Tax Fairness companion bill drops purchase exclusion to $50. (Accessed August 4, 2022)].
The Digital Commodities Consumer Protection Act of 2022
The Digital Commodities Consumer Protection Act of 2022 is the second bipartisan bill introduced in the Senate this past week. Introduced into the Senate by the surprisingly unlikely pair of Senators John Boozman (R-AK) and Debbie Stabenow (D-MI), [joined by Cory Booker (D-NJ) and John Thune (R-SD)] neither of which are at the forefront of cryptocurrency legislation resulting from their assignment to the Committee on Agriculture, Nutrition and Forestry.
"The bill has been expected for several months. Like the Digital Commodities Exchange Act (DCEA) introduced into the House of Representatives by members of the House Agriculture Committee in April, the new bill enlarges the role of the Commodity Futures Trading Commission (CFTC). The new bill is not the companion to the DCEA, however" [Andersen, D. Senators Stabenow, Boozman introduce crypto bill that extends CFTC's regulatory powers. (Accessed August 4, 2022).
This bill "would create a definition of "digital commodity" that would include cryptocurrencies like bitcoin and ether but not anything that may be a security, giving the CFTC the ability to oversee both digital commodity transactions and force registration of digital commodity platforms, according to a section-by-section breakdown of the bill" [De, N. CFTC Would Become Primary Crypto Regulator Under New Senate Committee Plan. (Accessed August 4, 2022)].
[For access to a section-by-section breakdown of The Digital Commodities Consumer Protection Act of 2022, click here].
According to the summary, the bill’s definition of digital commodities 'includes Bitcoin and Ether and excludes certain financial instruments including securities,' which are regulated by the Securities and Exchange Commission (SEC). The bill mandates registration by the CFTC of a broad spectrum of market players, such as 'digital commodity broker,' 'digital commodity custodian,' 'digital commodity dealer' and 'digital commodity trading facility,' which are collectively understood to be 'digital commodity platforms.' Digital commodity platforms could be cross-registered with the SEC under the bill. In addition, the bill would require the registration of 'associated persons of digital commodity brokers and digital commodity dealers.'
[Andersen, supra].
In essence, "[t]he CFTC, whose purview is now mostly limited to crypto derivatives, would get the ability to police trading in the largest digital assets under the plan introduced Wednesday..." [Versprille, A. Push to Give Derivatives Regulator More Sway Over Crypto Trading Gains Steam. (Accessed August 4, 2022)]. The bill would clarify "the derivatives regulator direct oversight of tokens that qualify as 'digital commodities,' which according to a summary of the plan include Bitcoin and Ether -- the two largest digital assets" [Id].
The Stabenow-Boozman bill would be a win for the cryptocurrency industry, which sees the CFTC as more industry-friendly regulator than the SEC. The CFTC, which had a budget last year of $304 million with roughly 666 employees, is a fraction of the size of the SEC, which had a budget of nearly $2 billion and 4,500 full-time employees. '(The cryptocurrency industry is) trying to get anyone other than the SEC to regulate them,' said Cory Klippsten, CEO of Swan Bitcoin. While an advocate for Bitcoin, Klippsten is deeply skeptical of much of broader crypto industry, which has produced a myriad of tokens and other coins that he considers to be nothing more than scams.
[Hussein, F. and Sweet, K. New crypto oversight legislation arrives as industry shakes. (Accessed August 4, 2022)].
"Crypto executives have been pressing for the CFTC to get more power as they resist Securities and Exchange Commission Chair Gary Gensler’s assertions that many digital coins are securities under the SEC’s purview. Industry trade groups, including the Blockchain Association and the Crypto Council for Innovation, put out statements in support of the senators’ efforts" [Versprille, supra].
Patrick Daugherty, head of the digital assets practice at Foley & Lardner and adjunct professor of Cornell Law School, told Cointelegraph in an email, 'The legislation […] does not make clear that digital assets (other than Bitcoin and Ether) are not securities and are therefore covered by the DCCPA. It is therefore open to the SEC under its current leadership to continue to assert that virtually every digital asset is a security, which would be unfortunate.' Daugherty also observed: 'It is not clear to me that decentralized exchanges are, or are not, intended to be covered by this legislation. The platforms that are covered must be operated by "persons," but DEXes have no personnel.'
[Andersen, supra].
"Rostin Behnam, the chairman of the CFTC, has said his agency is well-positioned to take on a greater role. The agency has also been working with lawmakers crafting the plan, which is just one of a spate of crypto bills. To become law, it would require multiple votes in the Senate and a version would also need to pass the US House" [Versprille, supra].
Final Thoughts
Both of these pieces of legislation provide welcome relief to the cryptocurrency community. While providing some degree of clarity, both bills operate so as to foster the adoption of cryptocurrency to the mainstream.
But keep in mind, the legislative wheels in the U.S. grind slowly. Very slowly...
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