At 1PM on 4/2/14 in room 2360 of the Rayburn House Office Building, the House Committee on Small Business assembled for a hearing on Bitcoin: Examining the Benefits and Risks for Small Business. The House Committee on Small Business is chaired by Congressman Sam Graves [MO-06], other representatives on the committee are Tom Rice [SC-07], Chris Collins [NY-27], Kerry Bentivolio [MI-11], David Schweikert [AZ-06], Tim Huelskamp [KS-01], Richard Hanna [NY-22], Jaime Herrera Beutler [WA-03], Scott Tipton [CO-03], Mick Mulvaney [SC-05], Blaine Luetkemeyer [MO-03], Mike Coffman [CO-06], and last but not least Steve King[OH-01]. The full committee received testimony from a diverse panel of industry and academic experts in the matter. After the witness panel, most of the representatives took the time to ask meaningful questions during the Q & A session after the witness testimonies.
The witness panel consisted of Jerry Brito of the Mercatus Center, Mark T. Williams of Boston University, Adam White of Coinbase, and Michael Couvillion of Plymouth Slate University. Their witness testimony can be found at this link. In Congressional and Senate hearings, the witness testimony is usually prepared and submitted in advance of the meeting; as such, the only real dialogue occurs in the Q & A. This Committee hearing’s Q & A was mostly dominated by Representative Mulvaney and Representative Schweikert, whom both took the opportunity to ask very hard hitting and revealing questions.
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At one point, Representative Mulvaney asked the panel whether or not they felt the IRS Virtual Currency Guidance was correct. He only accepted ‘yes’ or ‘no’ answers and this is how the panel responded:
Michael Couvillion: ‘No’
Mark T. Williams: ‘Yes’
Adam White: ‘No’
JerryBrito: ‘Tentative Yes’
Representative Mulvaney went on to say:
“It strikes me that it is a way to tax the internet, isn’t it? That right now we don’t have taxes on most of the internet sales… It strikes me that this is a way to tax internet trade. if I can’t tax the transaction I will tax the currency that is used to do it.
He asked Mr. White to explain his answer of ‘Yes’ and Mr. Williams to explain his ‘No’ answer. Mr. White summed up many American Bitcoiners’ thoughts perfectly:
“I think what was surprising was the misalignment between the regulators. We had FinCEN come out last year and basically describe Bitcoin as a currency. They said, “companies like Coinbase that operate and provide Bitcoin services, please register as a money service business under FinCEN,” and we followed that guidance… With the IRS’s recent guidance that now Bitcoin is a property, there’s a mismatch there… How do you exactly describe this asset class? How do you describe Bitcoin? At Coinbase, obviously, we’re working with our counsel and working closely with the IRS to seek additional guidance because what we want to do is enable as burden-less of a process as possible for our users to be able to transact in Bitcoin. And right now with this guidance, it makes buying a $2 cup of coffee nearly impossible without additional products and services to track that cost basis.”
To counter, Mr. Williams “explained” that Bitcoin wasn’t a currency because of lack of stability and liquidity. He defended the IRS’s ruling by stating that Bitcoin is more like a commodity (property) than a currency: it is mined, stored, processed, resold in the market, and “actually has scarcity.” Given the choice between commodity and currency, commodity seemed to be the more logical choice. A point that Jerry Brito also eluded to when explaining his tentative ‘yes’.
To view the full exchange starting with Representative Mulvaney’s question: click here.
Otherwise, the entire video of the House Committee on Small Business hearing on Bitcoin has been uploaded to youtube by the government.
How Will The IRS Virtual Currency Guidance Change?
Later in the Q & A session, Jerry Brito mentioned that most American Bitcoin holders had long been anticipating an IRS Virtual Currency Guidance, and have likely filed for extensions. Additionally, it is naive to imagine that Bitcoin would never have been taxed by the U.S. government. The specific tax issue that rises from treating Bitcoin as property is the calculation of capital gains for all transactions no matter the size. If Bitcoin were classified as a currency by the IRS, then existing de minimis reporting exemptions on foreign currency transactions under $200 would alleviate the $2 coffee problem that is increasingly being referenced.
Also in the Q & A, Congressman Mulvaney mentioned that Germany had ruled that Bitcoin was a type of “private currency” and that perhaps the US government should look into a new asset class for Bitcoin, as well. I couldn’t agree more, around the world other countries are ignoring the moneyed fearmongering and declaring Bitcoin as a “virtual currency.” The government needs to amend the IRS Virtual Currency Guidance so that it does not stifle the Bitcoin economy within America. I think it is incredibly likely that a Representative will eventually introduce a bill to the House that clarifies the whole US government’s stance on Bitcoin and other digital currencies. Similar action is already happening at the state level in California with AB 129, though the move is largely symbolic. The “misalignment” between government entities in the realm of regulation should not and will not be tolerated by the American people. In the case of Bitcoin, the world is watching.