Token Taxonomy Act May Exclude Digital Currency From Securities Definition
The Bi-Partisan Bill Could Limit Tax Liability Associated With Cryptocurrency Trading
By Block Society
Token Taxonomy Act Seeks to Prevent Digital Currency From Being Considered a Security
Two members of Congress are planning to introduce a new piece of legislation that seeks to exclude cryptocurrency and digital currency from being included in the current definition of a security.
The bi-partisan bill, tentatively called “The Token Taxonomy Act,” is being introduced by Reps. Warren Davis, R-Ohio, and Darren Soto, D-Florida. The bill creates an explicit definition of “digital currency,” and states that “securities laws would not apply to cryptocurrencies once they become a fully functioning network.” In June, William Hinman, head of the Division of Corporation Finance at the SEC, stated that digital assets and cryptocurrencies such as Bitcoin where not securities because they are decentralized. However, ICOs are considered securities because they are advertised as investments and third parties who participate in ICOs have the expectation of a return.
“The bill creates an explicit definition of ‘digital currency,’ and states that ‘securities laws would not apply to cryptocurrencies once they become a fully functioning network.’“
While the SEC and Congress continues to scrutinize fraud involving ICOs, Congress is looking to clarify the legal status of digital assets by amending the Securities Act of 1933 and the Securities Exchange Act of 1934. Updating the antiquated statutory definition of security to exclude digital currency should help alleviate concerns cryptocurrency investors have about the ambiguous position that cryptocurrency holds with the SEC.
Although the bill likely will not be passed this year, the measure will likely be re-introduced in early 2019.
If the bill passes, the IRS would have to create additional tax exemptions for like-kind and crypto-for-crypto trades and allow a $600 de minimis tax exemption for profits and proceeds received from selling or exchanging digital currency.
The bill would retroactively apply to January 2017 and offer safer harbor to anyone facing SEC infractions if they had a good faith belief that their asset was a token or digital currency.
 Rooney, Kate. 2018. Lawmakers Look to change SEC’s 72-year-old securities definition to exclude cryptocurrencies. https://www.cnbc.com/2018/12/20/lawmakers-look-to-change-secs-72-year-old-securities-definition-to-exclude-cryptocurrencies.html.
 Sharma, Sunil. 2018. Why Proposed “Token Taxonomy Act of 2018” is Important for Crypto Marker. https://coingape.com/token-taxonomy-act-2018-crypto-market/.
 Peaster, William. Token Taxonomy Act: What American Crypto Users Have Been Waiting For. https://bitsonline.com/token-taxonomy-act-crypto/.