People who use digital currency such as bitcoin for small purchases face a big problem: Under current tax rules, any little transaction—like buying a cup of coffee—can be considered a capital gain, and trigger an obligation to the IRS.
A solution may be on the way, however, in the form of a bipartisan bill introduced in the House of Representatives on Thursday by Rep. Jared Polis (D-Co) and Rep. David Schweikert (R-Az). Titled “The CryptoCurrency Tax Fairness Act,” the bill calls for Congress to create a so-called de minimus exemption for transactions under $600.
If the bill is passed, it would subject digital currency to a similar tax regime as what currently exists for foreign currency. It would also eliminate a disincentive for people to use bitcoin (and other digital assets like Ethereum and LiteCoin) in day-to-day transactions.
The taxing of digital currencies has become a big issue in the last year, in part because the price of digital currencies has soared so dramatically. Bitcoin, for instance, has soared from $1,000 at the start of 2017 to a recent high of $5000—meaning that anyone who has sold it or exchanged it or goods at retailers like Overstock is on the hook to declare capital gains.
The proposed exemption would thus eliminate this concern for small transaction. Meanwhile, the bill also calls for the Treasury Department to provide guidelines for reporting on profits and losses tied to digital currencies, which could create a regime that makes it easier for citizens to keep track of their tax obligations.
According to the Coin Center, an advocacy group for digital currency, the current system requires cryptocurrency owners to keep track of all their transactions—and the related tax implications.
Guidelines from the Treasury could, the Coin Center suggests, require digital currency exchanges to act more like conventional brokerages, which are obliged to create forms that describe their customers’ tax obligations.
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The proposed CryptoCurrency Tax Fairness Act also comes amid a bitter and ongoing legal feud between the IRS and the country’s most popular digital currency exchange, Coinbase. The dispute flared up last year when the agency asked Coinbase last year to hand over detailed information about millions of customer accounts as part of an investigation into unpaid taxes (the IRS claims only 802 people declared bitcoin-related gains or losses in 2015.)
In response, Coinbase customers sued the IRS while senior Republicans in Congress warned the agency its investigation was too intrusive and overreaching. The IRS has since scaled back its demands though the legal fight continues.
It’s unclear if the bill, which so far lacks a companion piece of legislation in the Senate, will get anywhere given the current crowded agenda and political dysfunction in Washington. One hope may be for Reps. Polis and Schweikert to attempt to attach the measure to the larger project of tax reform.
In an email to Coins2Day, the Executive Director of Coin Center, Jerry Brito, said the process was still in early stages.
“This bill was just introduced so I don’t think the strategy for its passage is very far along. But its promising to see that this bill is bipartisan, shouldn’t be controversial, and fits with the majority’s top priority for the year, which is tax reform,” said Brito.
This is part of Coins2Day’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.