The U.S. Congress has begun hearings for a bill aimed at implementing a de minimis tax exemption for smaller cryptocurrency transactions.
An act developed by Washington, D.C.- crypto advocacy group Coin Center was introduced in a congressional hearing on Thursday (January 16, 2020).
Lawmakers Want Reasonable Tax Exemption for Cryptos
Congresswoman Suzan Delbene and Congressman David Schweikert introduced the Virtual Currency Tax Fairness Act of 2020 published by the crypto advocacy group to congress on Thursday (January 16, 2020).
Using the act as a guideline for the implementation of new crypto tax laws, the representatives proposed a de minimis tax exemption bill for everyday crypto transactions.
The bill seeks to implement laws suited to the specific nature of cryptocurrencies that were not necessarily considered by the U.S. Internal Revenue Service (IRS)
In March 2014, the IRS announced that it categorized virtual currencies as property. This means that in filing crypto taxes, gains from the sale or exchange of bitcoin and other cryptocurrencies are taxed as capital gains which generally have a lower crypto tax rate than ordinary income.
However, there is no de minimis exemption for property as there is for traditional government-issued currency.
The representatives stated that the aim of the proposed bill is to introduce an exemption from capital gains for low-value day to day transactions.
Crypto transactions with a calculated capital gain of $200 and below will be exempted.
The bill states that:
“Gross income of an individual shall not include gain, by reason of changes in exchange rates, from the disposition of virtual currency in a personal transaction (as such term is defined in section 11 988(e)). The preceding sentence shall not apply if the gain which would otherwise be recognized on the transaction exceeds $200.”
Momentum Has Building For Crypto Suited Tax Legislations
Coin Center commented that the de minimis exemption creates an easy solution to an obvious problem. The proposed crypto tax bill is a step in the right direction and should help to enable a level playing field for cryptocurrencies and crypto technology.
The proposed bill is identical in some parts to a previous effort in Congress spearheaded by Congressman Schweikert and former Congressman Jared Polis back in 2017. The previously proposed bill offered a more generous exemption for crypto transactions of up to $600.
The bill stated that:
“Gross income shall not include gain from the sale or exchange of virtual currency for 5 other than cash or cash equivalents….[if the amount of gain excluded from gross income under subsection (a) with respect to a sale or exchange shall not exceed $600.”
Representative Tom Emmer also proposed a Safe Harbor for Taxpayers with Forked Assets Act to Congress back in 2018.
Tax Authorities Keen on Combating Crypto Tax Exemption
The new bill currently undergoing consideration in Congress is the latest in a string of growing interest in legislations concerning cryptocurrency and blockchain technologies.
However, while crypto experts and advocates are worried that the upcoming Presidential elections in November might delay any major decisions, tax authorities like the IRS are concerned that the new laws might enable a higher rate of crypto tax evasion.
In June 2019, Blockonomi reported that the Australian Taxation Office was investigating a number of global tax evasion schemes involving crypto. The Tokyo Regional Taxation Bureau was also reported to have been combing through data from domestic exchanges in search of tax cheats.
The IRS was set to introduce new crypto taxation rules back in May 2019 following reports of crypto-based tax evasion cases. The tax authority followed up with investigations and later reported to have distributed over 10,000 warning letters to bitcoin investors.