In 2014, the IRS classified digital currency as property. The outdated guidance classifies even the smallest of cryptocurrency transactions the same as buying or selling stock, which dis-incentivizes consumers from using virtual currencies to pay for goods and services.
The bipartisan legislation creates a structure for taxing purchases made with cryptocurrency. Similar to foreign currency transactions, it allows consumers to make small purchases with cryptocurrency up to $600 without burdensome reporting requirements.
“Cryptocurrencies can be used for anything from buying a cup of coffee to paying for a car to crowd funding a new startup and more and more consumers are choosing to use this type of payment. To keep up with modern technology, we need to remove outdated restrictions on cryptocurrencies, like Bitcoin, and other methods of digital payment,” said Polis. “By cutting red tape and eliminating onerous reporting requirements, it will allow cryptocurrencies to further benefit consumers and help create good jobs.”
“Individuals all over the world are starting to use cryptocurrencies for small everyday transactions, yet here in the States we have fallen behind and make cryptocurrency use more of a challenge than it needs to be,” said Schweikert. “With this simple legislative change, anyone can make digital payments to buy a newspaper or a bike without worrying about tax code challenges.”
“While Bitcoin and other cryptocurrencies are technologically innovative payment methods, today you have to keep track of and report every transaction you make using them, whether it’s a $10,000 investment trade or whether you’re buying a 99¢ song online or a latte at a café. This obviously creates friction and puts cryptocurrencies at a disadvantage relative to other digital payment methods,” said Jerry Brito, Executive Director of cryptocurrency think tank Coin Center. “We applaud Representatives Polis and Schweikert for their leadership in introducing the Cryptocurrency Tax Fairness Act, which would treat cryptocurrencies similarly to how foreign currency is now treated and relieve users from having to keep track of small personal transactions. Not only will this create a level playing field for digital currencies, it will also help unleash innovation on applications like micro payments, which can consist of dozens of transactions per minute and thus are difficult to square with the current law.”
Polis and Schweikert relaunched the Congressional Blockchain Caucus in February. The caucus educates, engages, and provides research to help policymakers implement smart regulatory approaches to the issues raised by blockchain-based technologies and networks.
Blockchain is a decentralized distributed ledger that is the main technology powering cryptocurrencies such as Bitcoin and Ethereum. By using math and cryptography, blockchain supplies a decentralized database of every transaction involving value. This creates a record of authenticity that is verifiable by a user community, increasing transparency and reducing fraud.
Crytocurrencies, like Bitcoin and Ethereum, are used for purchases, trade, and payment across the globe. The estimated value of the cryptocurrency economy is $162 billion.