Update on Pending Crypto-Friendly Bills in Congress and Their Tax Benefits
The crypto industry is poised for regulatory oversight and pending crypto legislation would bring tax benefits for taxpayers who trade cryptocurrency.
New crypto bills continue to join the already crowded field of proposed legislation covering the digital asset landscape.
One writer for Forbes has pegged the total at more than 50 pending bills and resolutions.
The focus isn’t surprising given the general turmoil and upheaval in the industry and the overall popularity of crypto investing in recent years. Learn more about the potential tax implications in our cryptocurrency guide here.
Earlier this year, President Biden issued an executive order calling on federal agencies to look at ways to regulate digital assets.
Likewise, the president’s working group on financial markets has called on Congress to regulate stablecoins, which are cryptocurrencies linked to a financial asset like the dollar.
Here’s a look at recent proposals gaining industry attention right now:
Responsible Financial Innovation Act (RFIA)
In June, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) proposed the Responsible Financial Innovation Act (RFIA), a wide-ranging bill that would establish a significant regulatory framework for crypto assets in the US.
The bipartisan proposal has been described as “crypto-friendly.”
The 69-page proposal is extensive, covering issues such as taxes, securities, consumer protection, banking laws, and stablecoins.
Here are three key elements of the RFIA:
- CFTC to regulate most digital assets
The RFIA would grant jurisdiction over digital assets to the Commodity Futures Trading Commission (CFTC), which is generally seen as more receptive to the needs of the crypto community.
The CFTC is a relatively small agency tasked with regulating the derivatives market, such as grain futures.
The Securities and Exchange Commission (SEC) has maintained that most digital assets qualify as securities – similar to stock in publicly traded companies – and therefore fall under their regulatory arm.
However, in a joint press release issued by Lummis and Gillibrand, the senators refute that, saying “most digital assets are much more similar to commodities than securities.”
Exclusions to CFTC jurisdiction would include digital assets that provide rights to a business entity (e.g., debt or equity-like characteristics), as well as digital collectibles and other non-fungible assets.
The CFTC is considerably smaller than the SEC. The bill would impose industry user fees to fund oversight by the CFTC, similar to the model that currently supports the SEC.
- Payment stablecoins require backing
Under the bill, issuers of stablecoins — a type of cryptocurrency designed to have a relatively stable price pegged to other currency — would be required to maintain reserves fully backing their digital assets.
That would guarantee that a payment stablecoin holder could always redeem the stablecoin in exchange for the equivalent dollar value.
- Digital asset taxation
Taxwise, the bill would require the IRS to adopt guidance on merchant and charitable acceptance of digital assets.
It would eliminate capital gains taxes for cryptocurrencies used to buy goods up to $200, potentially clearing a path for crypto assets to function more like currency.
It would also allow crypto miners to defer income taxes until they dispose of the assets.
The RFIA bill would further impose disclosure requirements on digital asset service providers, create an advisory committee to respond to developments in the crypto industry, and enable a regulated “sandbox” to test innovative crypto projects on a limited basis.
It would require a number of federal studies, including an examination of digital asset energy consumption, a study of China’s central bank digital currency, and an analysis of the risks associated with investing retirement savings in digital assets.
Digital Commodities Consumer Protection Act
In August, Senators Debbie Stabenow (D-MI) and John Boozman (R-AR) introduced a narrower bill focused on federal standards for crypto commodity trading and crypto commodity spot markets.
Like the RFIA, the Digital Commodities Consumer Protection Act (DCCPA) would enlarge the role of the CFTC, giving it jurisdiction over “digital commodities.”
The bill would create federal standards for crypto commodity trading and the crypto commodity spot markets.
It would also require a broad number of market players to register with the CFTC, including digital traders, brokers, custodians, dealers, and platforms.
And, like the RFIA, the bill would impose industry user fees in order to fund oversight by the CFTC.
Select crypto community leaders came out in favor of the bill, with Blockchain Association policy head Jake Chervinsky saying it “confirms a growing consensus for CFTC regulation.”
But criticshave argued that the bill would not go far enough in its definition of digital assets as commodities, leaving the door open for continued SEC regulation.
Other bipartisan bills worth watching
- Virtual Currency Tax Fairness Act
Also this summer, Senators Pat Toomey (R-PA) and Kyrsten Sinema (D-AZ) introduced a bill that would exempt small crypto purchases from capital gains taxes.
Transactions with related gains of less than $50 would be exempt.
- Digital Commodities Exchange Act (DCEA)
Introduced in the House in April, the DCEA would establish oversight under the CFTC and create an elective registration option for crypto exchanges – with incentives for registration.
The 2022 version of the bill is an update from one introduced in 2020.
- Stablecoin bill
The latest draft of a stablecoin bill, currently in the House, would create a regulatory framework requiring greater transparency around the reserves associated with each stablecoin.
It would allow banks and nonbanks to issue stablecoins, under approval from federal regulators.
And like proposals mentioned above, it would bar the SEC from regulating them as securities.
The bill, which has been much delayed, could receive a committee vote in October.
While none of these measures seem likely to move forward this year, momentum for crypto legislation is growing.
These bills, which will serve as a starting point for negotiations in the 118th Congress, demonstrate Congress’s intention to update federal law to align with the growth in digital assets.