Today, Representatives Suzan DelBene (D-WA) and David Schweikert (R-AZ) introduced the Virtual Currency Tax Fairness Act. The bill would exempt from an individual’s taxable income any gain resulting from a personal transaction using virtual currencies so long as the gain is less than $200. We are pleased to see Congress take action to align the treatment of virtual currencies with foreign currencies in U.S. law and address a serious impediment to the adoption of cryptocurrencies and blockchain technology. The legislation would do much to secure and promote the future of open blockchain technology in the United States.
Under current U.S. law, any gain realized from a transaction using virtual currency must be reported as taxable income regardless of the purpose or size of the transaction. In practice, this means that when you buy an apple using virtual currency, you’re legally obligated to break out the calculator, calculate, and report any gain or loss realized from the time you purchased the virtual currency to the time you bought the apple.
Today, many of the imaginative business models that innovators are developing in the blockchain industry become untenable under the weight of this type of tax treatment. Open blockchain networks promise to enable these new business models by providing efficient payment rails that don’t currently exist for traditional fiat currencies. Requiring users to track gains and losses on each micro-transaction they engage in across dozens of different digital currencies significantly erodes these efficiency gains.
Already, the U.S. tax code recognizes the disruptive complexity of keeping track of gains and losses resulting from personal transactions in foreign currency. To address this complexity, section 988(e) of the code provides a reasonable exception for situations like the one described above. The exception works by excluding any gain that an individual realizes as the result of a personal transaction in foreign currency from the individual’s taxable income so long as the gain is less than $200. The legislation introduced today would expand this exception to include transactions using virtual currencies.
We believe that the provisions of this bill are crucial for ensuring that the US remains competitive in the quickly evolving and highly promising open blockchain industry. As the tax code currently stands, US citizens and entrepreneurs are at a significant disadvantage to citizens of countries like Germany and Italy, which both already exempt personal virtual currency transactions from the burdensome requirements that our tax code currently imposes.