A bill has been introduced in the House of Representatives which seeks a five year moratorium on statutory restrictions or regulations on cryptocurrencies such as Bitcoin. The bill also seeks to establish a neutral tax treatment for cryptocurrencies rather than the “less than optimal” guidance provided by the Internal Revenue Service in a notice issued earlier this year.
The bill H.R. 5777: Cryptocurrency Protocol Protection and Moratorium Act was introduced by Rep. Steve Stockman of Texas on December 1, 2014. The text of the bill frames cryptocurrencies as potentially beneficial to the American people and the public interest.
It is further the sense of Congress that the development and use of any media for exchange which possesses the characteristic of cryptographic proof of and for a transaction of cryptocurrency without the need for or reliance upon third-party intermediaries or verification is a circumstance that is likely to result in economic and other efficiencies for the American people and other participants in the domestic economy, and as such may be crucial to overall economic growth, will enhance the economic well-being of the American people and will otherwise be in the public interest.
The bill calls for the moratorium to be established beginning on June 1, 2015 and extending for a period of five years following enactment. The federal government, state governments, and any political subdivision would be prohibited from imposing any statutory restrictions or regulations identifying and governing the creation, use, exploitation, possession, or transfer of any cryptocurrency.
With regards to taxation, the bill calls for the a neutral treatment for cryptocurrencies which does not disfavor or discourage their production, possession, or use. On March 25, 2014, the Internal Revenue Service had issued Notice 2014-21 providing guidance that virtual currencies should be taxed as property. The guidance provided that a taxable event occurs any time a virtual currency is received based on its fair market value.
Tax treatment of cryptocurrency as property does not account for the substantial illiquidity and highly limited acceptance and use of cryptocurrency, and substantially and unfairly discourages taxpayers engaging in a trade or business from using cryptocurrency in commerce. This circumstance is likely to discourage economic activity and stifle innovation and growth.
Under the bill, virtual currencies would be taxed as currency rather than property with an additional allowance for the potential volatility and illiquidity. The monetizing event from the receipt, mining, or creation of cryptocurrency would take place when the cryptocurrency is converted or exchanged into dollars or any official government currency.
Following its introduction, the bill H.R. 5777 was referred to the Committee on Financial Service and the Committee on Ways and Means. There are currently no cosponsors attached to the bill.