US Representative, Steve Stockman (R-TX) has submitted a new bill that proposes a five-year moratorium on digital currency regulation. The HR 5777 bill, (download the text here) or in full the Cryptocurrency Protocol Protection and Moratorium Act, seeks to hold off any “statutory restrictions or regulations” on digital currencies such as bitcoin for “the five-year period after June 15th, 2015.” The bill was tabled on December 1st and was thereafter referred to two House committees, the Ways and Means; and the Financial Services committees.
HR 5777 calls for important changes to how digital currencies are treated under US tax rules. At present, the Internal Revenue Service, IRS, treats bitcoin holdings as property, though freely admitting at the same time that bitcoin could be used as a “virtual currency.” The approach becomes problematic at present especially in view of the wild fluctuations in the value of the bitcoin. The real danger for taxpayers with the current approach is that they would be prone to overtaxation or overpayment.
In addition, the HR 5777 also proposes to tax bitcoin mining income only at the point of conversion rather than at the point of creation. This approach takes into account the actual realities of bitcoin mining. It is the reality that bitcoin miners could spend plenty of effort and achieve very little. It would, therefore, make sense to tax bitcoin mining only when actual income has been realized and converted in dollars or any other fiat money.
HR 5777’s Timely Introduction into the House
HR 5777 has come at just about the right time. Globally, there seems to be a growing consensus among revenue authorities on treating cryptocurrency as property. HR 5777 should, therefore, be seen as an attempt at stemming this tide, and providing digital currency with enough time and space to incubate further. This would be in contrast to the current approach which would seek to kill the goose that lays the golden egg.
In the US, the state of New York has been at the forefront in developing regulation for digital currencies. New York’s Department of Financial Services has developed what have come to be known as the BitLicense, a move that was felt could destroy virtual currency growth and innovation in the Big Apple.
The HR 5777 bill aims to curb both the federal and state governments from imposing any restrictions and regulations on among other things, the identification, creation and transfer of cryptocurrency. The bill further calls for the suspension of any and all pending statutes until the end of the five-year moratorium. This move would in all certainty halt or significantly alter the New York Department of Financial Services’ BitLicense.
HR 5777 and Bitcoin
The HR 5777 bill’s moratorium is needed so as to assess fully and examine the potential economic benefits of digital currencies. The text of the HR 5777 says that cryptocurrency provides opportunities that are likely to lead to economic and other efficiencies for the American people and other participants in the economy.
Mr. Stockman has emerged as a champion in Congress for bitcoin and other digital currencies. The HR 5777 bill that he proposes comes at a time when governments and tax agencies around the world have reflexively moved to treat bitcoin in the manner that is most advantageous for tax purposes. This approach of treating bitcoin as property is likely to kill the innovation that has come to characterize the cryptocurrency community around the world. In treating cryptocurrency as property, tax authorities such as the IRS fail to take into account all of the different facets of cryptocurrency.
The attention of the cryptocurrency community globally will now be directed to Congress where the bill now awaits debate and (hopefully) enactment. There isn’t much time since the Texas congressman may be on his way out after an unsuccessful run for the US Senate.
What do you think about HR 5777?
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