U.S. House Representatives Jared Polis (D-CO) and David Schweikert (R-AZ) introduced a bipartisan bill that would provide tax relief for small purchases made using cryptocurrency. As co-chairs of the Congressional Blockchain Caucus, Polis and Schweikert introduced the Cryptocurrency Tax Fairness Act of 2017 (the Act), which proposes that gross income would not include gain from the sale or exchange of cryptocurrency for property other than cash or cash equivalents if the gain does not exceed $600.
The brevity of the Act perpetuates the cloud of uncertainty surrounding the taxation of cryptocurrency sales or exchanges. The Act defines cryptocurrency as “a digital representation of value that is used as a medium of exchange and is not otherwise currency under [IRC] section 988.” This definition mirrors IRS Notice 2014-21 that states “virtual currency” should be considered property and not foreign currency.
Absent further clarification, it is unknown if cryptocurrency itself will be considered a cash equivalent under the Act. Thus, it is uncertain if sales or exchanges of cryptocurrency to obtain another cryptocurrency would always result in recognition of gain as is presently understood, or, if such sales or exchanges could be considered property transfers that allow for the de minimis relief. Commentary surrounding the Act seems to imply that the proposed legislation’s intent is to provide tax relief for the use of virtual currency in purchases of tangible property rather than with respect to its use in investing or trading activities.
The Act would also require the U.S. Treasury Department to issue much-needed regulations providing guidance on information returns for sales or exchanges of cryptocurrencies. If signed into law, the Act would apply to cryptocurrency transactions entered into after December 31, 2017. Ideally, these regulations would address the ambiguity surrounding the treatment of sales and exchanges involving pairs of cryptocurrency.
To date, the Act has not been presented for a vote and is not currently combined with any other legislation. With the packed legislative agenda, it is unclear if the Act will receive a vote in the near future. However, the bipartisan nature of the Act is promising given the current political strain in Congress. Stay tuned.
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