[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5892 Introduced in House (IH)]
113th CONGRESS
2d Session
H. R. 5892
To protect cryptocurrencies.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 2, 2015
Mr. Stockman introduced the following bill; which was referred to the
Committee on Financial Services, and in addition to the Committees on
Ways and Means and Agriculture, for a period to be subsequently
determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To protect cryptocurrencies.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Online Market Protection Act of
2014''.
SEC. 2. MORATORIUM.
(a) Neither the Federal Government nor any State or political
subdivision thereof shall impose any statutory restrictions or
regulations specifically identifying and governing the creation, use,
exploitation, possession or transfer of any algorithmic protocols
governing the operation of any virtual, non-physical, algorithm or
computer source code-based medium for exchange (collectively,
``cryptocurrency'' as defined herein) for a period beginning June 1,
2015, and extending five years after the enactment of this Act (such
period, the ``moratorium period''), except for statutes already enacted
and effective prior to the date of enactment of this Act, and further
suspending the enactment and effectiveness of any and all pending
statutes and regulations until the end of the aforementioned moratorium
period, except as otherwise provided in this section.
(b) During the moratorium period, the Federal Government and all
State governments and political subdivisions thereof shall not impose
any further statutory restrictions or regulations affecting Smart
Contract platforms such as cryptographic escrow services, multi-
signature transactions, and oracles, so as to allow for the growth and
facilitation of these important facets of cryptological technology.
(c) Federal and State Agencies shall consider cryptocurrencies
``exempt commodities'' akin to gold and silver, rather than ``excluded
commodities'' such as national fiat currencies. The Bitcoin
cryptological protocol is not strictly a currency, but is a broad
multifaceted protocol which allows for myriad novel applications.
(d) Federal and State Agencies shall have no jurisdiction over
Cryptocurrency Economy Transactions or Bitcoin Economy Transactions.
The financial regulations authorizing these agencies are designed to
protect users of financial instruments from fraud, manipulation, and
other types of misconduct that result in real economic losses; not
virtual losses solely within a cryptographic network.
(e) Nothing in this Act shall prevent, impair or impede the
operation of any government agency, authority or instrumentality,
whether of the Federal Government or of any State or political
subdivision thereof, to enforce currently existing criminal, civil or
taxation statutes and regulations.
SEC. 3. DEFINITIONS.
(a) ``Algorithm'' is defined as a procedure for solving a
mathematical problem in a finite number of steps performed by a
computer.
(b) ``Algorithmic chain'' is a series or chain of bits of data
comprising a unique string of data which is the basis for the
cryptographic proof of a valid transfer or transaction of
cryptocurrencies. The algorithmic chain for a cryptocurrency is
commonly referred to as a ``blockchain''.
(c) The ``cryptographic proof'' for each transaction or transfer is
based on one unique algorithmic chain, distinct from all previously
existing algorithms and neither replicable nor reusable yet sharing
with all other units at least one common source code element in the
algorithmic chain (or ``blockchain'') in the transferor's existing
Bitcoin or bitcoins.
(d) ``Protocol'' refers to procedures or guidelines governing the
creation, development and operation of a cryptocurrency.
(e) ``Service'' is defined as the Internal Revenue Service.
(f) The phrase ``using the Internet or other electronic, non-
physical medium'' means by placement of material in a computer server-
based file archive so that it is publicly accessible on, through, or
over the Internet, using hypertext transfer protocol, file transfer
protocol, or other similar protocols.
(g) ``Cryptocurrency'' is a popular term encompassing code-based
protocols supporting an electronic, non-physical media for the exchange
of value, and for the sake of both clarity and the avoidance of
confusion in the mind of the public, based on the prior use of this
term by the Internal Revenue Service in its initial guidance (see
Notice 2014-21, released March 26, 2014) this term is used herein.
However, it is believed ``cryptocurrency'' encompasses the same
protocols as those covered by terms such as ``digital currency'',
``virtual currency'' or ``electronic currency''.
(h) ``Agencies'' is defined as the regulatory bodies of the Federal
Government and the State governments or political subdivision thereof,
including but not limited to the Commodity and Futures Trading
Committee (``CFTC''), the Securities and Exchange Commission (``SEC''),
the Board of Governors of the Federal Reserve, the Financial Crimes
Enforcement Network (``FinCEN''), and the New York State Department of
Financial Services (``NYSDFS'').
(i) ``Smart Contracts'' are cryptographically encoded agreements,
often utilizing multi-signature technology, which allow for automatic
or multi-party execution and public recording of transactions or
property transfers when certain predetermined parameters are met.
(j) ``Multi-Signature Transactions'' are cryptographic contracts
encoded in the blockchain, often involving third-party arbitrators or
oracles, which are finalized when a pre-set number of involved parties
sign off. In a three-party multi-signature transaction involving an
arbitrator, the transaction may be finalized only when two (2) out of
the three (3) parties--a buyer, a seller, and/or the arbitrator--sign
off on the transaction.
(k) ``Cryptographic Escrow Services'' are services that allow for
fund transfers subject to the authorization of an arbitrator or other
intermediary. These transactions can utilize multi-signature
technology, allowing for the possibility of arbitration without
requiring any actual transfer of funds through the intermediary.
(l) ``Oracles'' are automated programs or algorithms acting as
signatories to multi-signature transactions. Utilizing databases and
information amalgamators, an oracle automatically executes its
signature when predetermined threshold is met.
(m) ``Cryptocurrency Economy Transactions'' or ``Bitcoin Economy
Transactions'' are transactions involving financial instruments
denominated in Bitcoin or another cryptocurrency underlying a
transaction which is also denominated in Bitcoin or another
cryptocurrency. A Bitcoin-denominated credit default swap that
references a Bitcoin-denominated loan would be a Bitcoin Economy
Transaction.
SEC. 4. DECLARATION OF MORATORIUM.
(a) In General.--It is the public policy of the United States that
no new statutes, regulations or advisory opinions be passed,
implemented, enforced or issued governing the creation, use, possession
or taxation of cryptocurrencies, the protocols governing each and the
data, codes, algorithms or other calculations comprising each, until
the expiration of the moratorium as provided in this Act.
(b) Public Interest.--It is further the public policy of the United
States that the development and use of any medium of exchange which
utilizes cryptographic proof of and for a transaction of cryptocurrency
without the need for or reliance upon third-party intermediaries or
verification will enhance the economic well-being of the American
people and result in significant economic growth. Given the
blockchain's capacity to serve as a public ledger, software developers
are creating mechanisms for ``smart'' technologies that will eliminate
the need for many forms of costly intermediation ranging from third-
party arbitration in legal disputes to key-exchanges in car and hotel
rentals. The capacity for publicly recorded multi-signature
transactions will allow for the seamless property transfers that are
certifiable, public and secure without the use of an intermediary.
These and other uses increase market efficiency and facilitate economic
activity and growth. Moreover, these advances promote the autonomy and
liberty of individuals and small businesses at the expense of needless
bureaucracy.
SEC. 5. DECLARATION OF NEUTRAL TAX TREATMENT.
(a) In General.--It is the public policy of the United States that
the production, possession or use of cryptocurrency, whether in trade,
commerce or personal non-commercial transfers, should not be disfavored
or discouraged by the Federal tax code or other Federal or State
statute or regulation.
(b) Tax Treatment.--It is the public policy of the United States
that the current guidance just promulgated and released by the Service
in its Notice 2014-21 is advisory, subject to public comment and not in
final form pending the expiration of the comment period. As such,
Congress believes that the current guidance is less than optimal for
the American people and economy, and directs the Service to issue or
revise interim regulations consistent with the following.
(c) Treatment as Currency.--It is the public policy of the United
States that virtual currencies should be treated as currency instead of
property in order to foster an equitable tax treatment and prevent a
tax treatment that would discourage the use of any cryptocurrency. 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. At present, a taxpayer accepting cryptocurrency
for goods or services will be taxed on the fair market value of the
cryptocurrency despite the fact that exchange rates (from
cryptocurrency to conventional currency) are both highly volatile and
published or available only on a small number of proto-exchanges in the
early stages of development, acceptance and awareness by cryptocurrency
users. As a result, current tax treatment will measure income on the
basis of an illiquid and likely inaccurate fair market value that
exceeds the taxpayer's true fair market value and hence income,
resulting in the risk of a consistent overtaxation or overpayment that
will act as a strong deterrent to or penalty for accepting
cryptocurrency in payment. Such tax treatment is inconsistent with the
tax treatment of secured notes for payment in trade or commerce, which
recognizes a discount from the face value of the note due to the
illiquid nature of the payment. (Note: See IRS Pub. 525 at 4.)
(d) Revenue in Trade or Business; Taxation Upon Monetizing Event.--
It is the public policy of the United States that taxpayers accepting
cryptocurrency in trade or commerce should be deemed to realize actual
income only when cryptocurrency is monetized through conversion or
exchange into dollars or any official government currency, and that
fair market value should be calculated as net proceeds from the
conversion. (Note: This treatment seeks to achieve the most accurate
and fair measure of actual income received, as distinguished from
theoretical income in the form of cryptocurrency which, until its
conversion to dollars, remains under substantial risk of diminution
from illiquidity or other conversion risks or inefficiencies. This
treatment is consistent with tax treatment of statutory stock options
where the taxable event is not the receipt or exercise of the option,
but the sale of the underlying stock for proceeds in cash. The goal
here is to have income taxed when the income is actual instead of
theoretical and subject to substantial if not total risk of loss
through liquidity problems, exchange problems or other barriers to
monetization.) Accordingly, as it is the further public policy of the
United States that income on cryptocurrency received in trade or
business should be defined as the net proceeds from conversion of the
received cryptocurrency into dollars, the Service is hereby directed to
revise or issue interim regulations consistent herewith.
(e) Revenue From Mining or Creation of Cryptocurrency.--It is the
public policy of the United States that the Service's guidance that
taxpayers should have the fair market value of the cryptocurrency they
successfully ``mine'' or produce included in gross income is
inequitable, overstates actual income by overstating fair market value
by not accounting for the liquidity risk or the risk that substantial
effort may yield no production, and strongly and unfairly penalizes or
discourages such income producing efforts and deters economic growth,
activity and innovation. Accordingly, as it is the further public
policy of the United States that mined produced cryptocurrency should
be taxed as income only when actual a transfer and conversion of
proceeds into dollars realize income, the Service is hereby directed to
revise or issue interim regulations consistent herewith.
SEC. 6. SEVERABILITY.
If any provision of this title, or any amendment made by this
title, or the application of that provision to any person or
circumstance, is held by a court of competent jurisdiction to violate
any provision of the Constitution of the United States, then the other
provisions of that title, and the application of that provision to
other persons and circumstances, shall not be affected.
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