WASHINGTON: A bipartisan US House of Representatives duo is drawing up a cryptocurrency tax framework that would provide a safe harbour for some stablecoin transactions and delay taxation of rewards earned by verifying blockchain transactions.
The cryptocurrency sector has clamoured for legislation that would clarify the tax treatment of digital assets, even as a broader measure to establish regulation of the assets is still under negotiation.
Republican Representative Max Miller of Ohio and Democrat Representative Steven Horsford of Nevada have obliged with a rough draft that would align the taxation of cryptocurrencies with that of traditional securities.
The draft, a mix of bill text and policy aims not yet translated into legislative language announced by the lawmakers, would exempt transactions involving regulated, US dollar-pegged stablecoins worth less than US$200 from capital gains taxes.
It would not establish a safe harbour for the trading of other cryptocurrencies, however.
The proposal also takes a stab at creating safe harbours for the tithing of rewards collected for verifying blockchain transactions.
“America’s tax code has failed to keep pace with modern financial technology,” Miller said in a statement.
“This bipartisan legislation brings clarity, parity, fairness, and common sense to the taxation of digital assets.”
Miller and Horsford sit on the powerful House Ways and Means Committee, which has jurisdiction over the tax code, and are the first on the panel to put pen to paper on a cryptocurrency tax framework.
Their draft bill is separate from an effort by committee leadership to craft cryptocurrency legislation; the authors said they focused on stablecoins in the draft because Congress has already enacted legislation for their regulation.
“The hope is that the committee will work together in good faith to set these critical rules of the road,” a spokesperson for Horsford said.
The proposal offers a compromise on the taxation of rewards earned through staking and mining cryptocurrencies, which involve verifying transactions on a blockchain network.
Under guidance the Inland Revenue Service issued during the Biden administration, rewards collected in exchange for staking are taxed when they’re received.
Republicans have called for that guidance to be reviewed, arguing it taxes an asset before the owner has realised a gain.
Progressive Democrats want that guidance to remain in place, however, arguing that the rewards are a form of compensation, which is typically taxed when received.
Miller and Horsford seek to find a middle ground by giving the taxpayer the option to defer tax on a reward for five years.
At that point, the reward would be taxed as income based on its fair market value.
Crypto tax legislation introduced by Senate Republican Cynthia Lummis earlier this year would leave the rewards untaxed until sold, as the industry has urged.
The draft also would bring cryptocurrencies under the tax regime governing securities and in some cases commodities transactions.
It would include digital assets in capital gains tax exemptions for foreigners trading securities through a domestic third party, such as broker or exchange, and investors lending securities.
The proposal also offers cryptocurrency traders the ability to use mark-to-market accounting, which requires taxpayers to recognise unrealised losses and gains based on the fair market value of securities at the end of each year. — Bloomberg
