And the industry (mainly) approves

On June 7, 2022, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the Responsible Financial Innovation Act (“RFIA”). If enacted, the RFIA will mark the first comprehensive federal legislation to include blockchain, cryptocurrencies, and digital assets. Of particular importance is how RFIA looks at digital asset innovation in relation to multiple disciplines, including banking, consumer protection, securities, and taxation.

Key provisions of the crypto bill include:

  • Define “digital assets” and “ancillary assets”, in general, and specific digital assets, in detail (i.e. stablecoins, virtual currencies);
  • Confirm when digital assets are properly treated as commodities
  • Provide a regulatory framework for the treatment of various digital assets under the auspices of the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) and how digital assets are affected by tax laws, anti-money laundering regulations, and securities regulations; Y
  • Requirements for final guidance and studies on various regulatory uncertainties not mentioned by the RFIA

Politically, Senator Gillibrand’s involvement in and ardent support of the digital asset space, which goes against her more skeptical colleagues (namely Senators Sherrod Brown (D-PA) and Elizabeth Warren (D-MA)) , is a noteworthy development.
The RFIA tax proposals are equally interesting, including:

  1. exempt personal virtual currency transaction earnings below $200 per transaction from tax;
  2. defer mining taxation and consensus layer staking rewards until disposition;
  3. requiring the IRS to adopt guidance “related to” the treatment of payment stablecoins as debt for US tax purposes;
  4. provided that the lending of digital assets in a transaction such as a securities loan is not a taxable event for the lender; Y,
  5. treat decentralized autonomous organizations (“DAOs”) as business entities by default in case the DAO is “duly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization, cooperative, foundation, or any similar entity “.

Note: The bill is silent on crypto reporting rules added last November by the Infrastructure Investment and Jobs Act. Under those rules, transactions involving $10,000 or more in digital assets, like similar cash transactions, must be reported to the IRS. That requirement is currently being challenged as unconstitutional in a case in the US District Court for the Eastern District of Kentucky. Stay tuned.

The breadth of the RFIA, in terms of addressing all of the notable sectors of regulatory oversight in a single piece of legislation, is unique among the many other digital asset-related bills on the Congressional docket for 2022: (The Digital Asset Exchange Act). of Digital Products (HR 7614); Virtual Currency Tax Fairness Act of 2022 (HR 6582); Keep Innovation In America Act (HR 6006); Values ​​Clarity Act (HR 4451); Virtual Currency Consumer Protection Act Act of 2021 (HR 5100), Blockchain Regulatory Certainty Act (HR 5045), Token Taxonomy Act (HR 1628), Digital Token Clarity Act of 2021 (HR5496), Barrier Removal Act to Innovation Act of 2021 (HR 1602); Digital Taxonomy Act (HR 3638)). Although it will take time (likely in 2023) and months of scrutiny and comment for the RFIA to become law, the bill offers hope and direction, as well as marking Senator Lummis and Gillibrand as industry leaders in this fast-moving space. movement.

Count on Friedman

This bill faces many challenges on its way to passage. Friedman LLP’s digital currency practice will follow closely behind. We will post updates as they happen. In the meantime, please feel free to contact your Friedman LLP advisor if you have any questions.

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