The price of bitcoin has skyrocketed in recent weeks, more than tripling in the past month. Amid this unprecedented attention on the so-called “cryptocurrency,” the Cryptocurrency Tax Fairness Act was introduced and would potentially be the first enacted law on the subject.
What is bitcoin exactly?
Bitcoin is a digital-only currency and payment system, not relying on any physical manifestation such as bills or coins.
It was originally started by a few tech-minded libertarians who disdained the federal government’s monopoly on producing and controlling the supply of money. Now the system is gaining traction as a means of purchasing and selling goods — akin to the dollars and cents you already use, only with less government regulation/rules and far less possibility of inflation.
Although bitcoin began in 2009, it took a few years to start taking off. In March 2014, the federal government issued its first major rule on the subject, when the IRS announced bitcoin would be treated as property instead of currency for tax purposes. (It can still be used as currency among two or more consenting consumers.)
Many cryptocurrency advocates worried that this decision could hamper bitcoin from really getting off the ground. “People might just be tempted to hoard rather than spend, because as soon as they spend they would be liable to incur capital gains taxes,” CoinSummit conference cofounder Pamir Gelenbe told the New York Times at the time.
Has that actually happened? An estimated 2–5 million individuals currently use or have used bitcoin, as more businesses and companies are starting to accept it as payment too. But advocates note that’s still a small minority of individuals and businesses at present, while the potential might be vastly higher than the current numbers.
What the bill does
The Cryptocurrency Tax Fairness Act would exempt bitcoin transactions from the IRS’s reporting requirements if they are below $600. That number would then tie to inflation each year.
The bill would apply to all cryptocurrencies, of which there are more than a thousand others such as Ethereum and Litecoin. But bitcoin is by far the most used and famous, comprising about 58 percent of the total value of all cryptocurrencies.
Introduced on September 7 by Rep. David Schweikert (R-AZ6), the bill is labelled H.R. 3708 in the House.
What supporters say
Supporters argue the bill would encourage the use of this innovative new technology rather than stifling it.
“Individuals all over the world are starting to use cryptocurrencies for small every day transactions, yet here in the States we have fallen behind and make cryptocurrency use more of a challenge than it needs to be,” Schweikert said in a press release. “With this simple legislative change, anyone can make digital payments to buy a newspaper or a bike without worrying about tax code challenges.”
What opponents say
Opponents counter that the IRS rule is exactly what they should have done, since it provides clarity with a lighter regulatory touch than they potentially could have gone with.
The rule “provides clarity for taxpayers who want to ensure that they’re doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies,” Sen. Tom Carper (D-DE), a member of the Senate Finance Committee, said in a statement. “I’ve long advocated for narrowing our nation’s estimated $385 billion tax gap but it’s tough for people to pay their taxes if they have to guess the amount they owe.”
(Some contend that even under the IRS rule, it still remains unclear how much taxpayers should report their bitcoin as being worth.)
Odds of passage
The legislation has attracted three bipartisan cosponsors: two Republicans and one Democrat. It awaits a vote in the House Ways and Means Committee.