Introducing: The Cryptocurrency Tax Fairness Act

Thijs Maas

Thijs Maas is a Dutch LLM student who developed a keen interest in the interplay between distributed ledger technologies and law. He started LawAndBlockchain.eu to help narrow the increasing gap between legal doctrine and regulatory challenges posed by blockchain-based asset classes.

On September 8th, a bipartisan bill called the Cryptocurrency Tax Fairness Act has been introduced to the United States Congress. The Bill creates a de minimis threshold of $600 for the purpose of capital gains taxation. Moreover, it poses a requirement on the Treasury Department to issue guidelines for informational reporting on digital currency transactions for which capital gains is due.

The current problem

In the United States, Bitcoin is considered to be an ‘intangible property’ by the IRS (tax authority). This makes general tax principles applicable to cryptocurrency transactions. Importantly, this means capital gains taxes are levied on the difference in price between the moment of buying and selling the cryptocurrency.

This is a problem for the use of bitcoin in day to day transactions. Say you want to buy a cup of coffee with bitcoin. You have bought some Bitcoin a month ago to be able to do this. As it happens, the price of bitcoin has gone up with 5% in this last month. This ‘capital gain’ means that buying a cup of coffee now creates a taxable event. As such, you would have to report this gain to the IRS at the end of the year. In other words, every time you buy anything with Bitcoin, you have to calculate how much capital gains or losses this results in – no matter how tiny the transaction.

 

The Cryptocurrency Tax Fairness Act

This is of course very cumbersome. Last year, only 888 people reported any sort of capital gain on Bitcoin. The Cryptocurrency Tax Fairness Act aims to solve this problem. It has been brought forward by members of the Congressional Blockchain Caucus in cooperation with Coincenter – a cryptocurrency advocacy group. The act proposes a de-minimis threshold to ensure that taxable event only occurs when a transaction with cryptocurrency is over $600. This would be a step in the right direction if cryptocurrencies are ever going to be used for day to day transactions.

The second important part of the proposed bill is require the Treasury Department to issue guidelines for informational reporting on digital currency transactions for which capital gains is due.

The Bill has not passed congress yet and it is doubtful if it will. However, it is another signal that Congress is not completely against to the idea of cryptocurrencies.

Thijs Maas is a Dutch LLM student who developed a keen interest in the interplay between distributed ledger technologies and law. He started LawAndBlockchain.eu to help narrow the increasing gap between legal doctrine and regulatory challenges posed by blockchain-based asset classes.