US Token Taxonomy Act Proposes to Separate Cryptocurrencies from Securities
Released on Thursday, the Token Taxonomy Act, H.R. 7356 pursues the course of disconnecting ‘digital tokens’ from existing securities laws, seeking to amend the Securities Act of 1933 and the Securities Exchange Act of 1934. The bill also wishes to grant tax exemptions for crypto-to-crypto trades and for individual retirement accounts, or IRA.
‘This bill provides the certainty American markets need to compete with Singapore, Switzerland, and others who are aggressively growing their blockchain economies.’
-Warren Davidson, Representative of Ohio’s 8th District
Ohio State Representative Warren Davidson and Florida State Representative Darren Soto introduced the crypto-friendly, bipartisan bill intending to provide the foundation for future regulatory standards. The bill is an outcome of a September roundtable headed by Davidson, joined by experts from Nasdaq and Fidelity among others.
Digital Tokens vs. Securities
‘A bill… to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography…’
-Token Taxonomy Act of 2018
In the proposed act, the term ‘digital token’ is defined as a digital unit generated from pre-mining or mining. Its transaction history once documented in a ‘distributed digital ledger’ is immutable, free from centralized control. The units can be traded between traders or can be sent from one person to another in the absence of an intermediary custodian. And it does not serve as a unit of financial interest, such as a share or ownership, in a company. Hence, digital tokens are different from securities.
The agency tasked to fine-tune cryptocurrency regulatory rules is the Securities and Exchange Commission (SEC).
Tax Exemptions and Adjustments
Section 8 cites ‘certain exchanges of virtual currency’ can be considered as non-taxable exchanges. Crypto-to-crypto exchange will be treated similarly to the exchange of tangible properties. The bill calls for the creation of a de minimis tax exemption for profits made from the sale or exchange of virtual currencies.
The Internal Revenue Service (IRS) is charged to work on the needed taxation adjustments.
‘While this legislation is a great first step, we are looking for feedback. The Federal Trade Commission (FTC) has a history of policing web services, while the Commodities Futures Trading Commission (CFTC) has authority over common derivatives.’
-Darren Soto, Representative of Florida’s 9th District