Outgoing United States Representative Steve Stockman of Texas has proposed a bill, H.R. 5777 that if it became law would impose a moratorium of five years on regulatory and statutory constraints upon cryptocurrency, as well as changing the treatment of cryptocurrencies under United States tax law to that enjoyed by traditional currencies. The moratorium proposed would apply to regulations and statutes at both the state and federal level. The chance this bill passes either house of the legislature is remote given a lack of support and Stockman's limited remaining time in Congress. If it makes it out of Congress its chance of becoming law would still be rather remote, because it would arrive on Obama's desk and require his signature. At present the bill has been introduced to the floor of the House and referred to both the House Finance Committee and the House Ways and Means Committee.
Representative Stockman lost the Republican primary election this spring when he challenged incumbent John Cornyn for the chance to run for his seat in the Senate. Full text of the proposed bill is below:
IN THE HOUSE OF REPRESENTATIVES December 1, 2014 Mr. Stockman introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Ways and Means, 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 title may be cited as the ``Cryptocurrency Protocol Protection and Moratorium Act'' (also, ``CryptPMA''). 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) 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''. SEC. 4. DECLARATION OF MORATORIUM. (a) In General.--It is the sense of Congress 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 sense of Congress that the development and use of any media for exchange which possesses the characteristic of cryptographic proof of and for a transaction of cryptocurrency without the need for or reliance upon third-party intermediaries or verification is a circumstance that is likely to result in economic and other efficiencies for the American people and other participants in the domestic economy, and as such may be crucial to overall economic growth, will enhance the economic well-being of the American people and will otherwise be in the public interest. SEC. 5. DECLARATION OF NEUTRAL TAX TREATMENT. (a) In General.--It is the sense of Congress 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 sense of Congress 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 sense of Congress 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 sense of Congress 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 sense of Congress 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 sense of Congress 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 sense of Congress that mined produced cryptocurrency should be taxed as income only when actual income is realized by a transfer and conversion of proceeds into dollars, 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.