US Representative Warren Davidson has reintroduced the Token Taxonomy Act (TTA). The bipartisan bill will establish the “digital token” as a new digital asset class, exempting certain cryptocurrencies from federal securities laws and making them subject to a new tax structure.
Representatives Davidson and Darren Soto initially introduced the bill in 2018 to prevent cryptocurrencies and digital assets from being classified as securities. The revised Token Taxonomy Act of 2019 (H.R. 2144) provides a more distinct definition of cryptocurrencies and would amend the Securities Act of 1933 and the Securities Exchange Act of 1940.
Key Highlights of the Token Taxonomy Act 2019
Exclude digital tokens from the definition of a security
Amend Securities Act of 1933 and Securities Exchange Act of 1934
Direct the SEC to enact certain regulatory changes regarding digital units secured through public key cryptography
Adjust taxation of cryptocurrencies held in individual retirement accounts
Create a tax exemption for crypto-to-crypto trades
Create a tax exemption for non-cash gains realized through the sale or exchange of cryptocurrencies
The TTA 2019 defines a digital token as a digital unit created in response to the “verification or collection of proposed transactions”, capable of being transferred between individuals without a custodian – such as Bitcoin. The bill also facilitates crypto traders who use Bitcoin as a gateway to purchase other cryptocurrencies, exempting gains made from crypto-to-crypto transactions. If passed, it could potentially drastically reduce the amount of reporting required for taxes by eliminating the need to account for each and every trade that only involves cryptocurrencies as opposed to fiat.
According to the bill,
“The term ‘digital unit’ means a representation of economic, proprietary, or access rights that is stored in a computer-readable format.’’
While the TTA 2019 seeks to exclude digital tokens from securities laws, the new definition of a digital token may still be too restrictive for crypto enthusiasts.
According to crypto advocate Caitlin Long, a 22-year Wall Street veteran and co-founder of the Wyoming Blockchain Task Force,
“The $600 tax exemption & 1031 (like-for-like) exchange provisions are great. I wish the bill stopped there! The definition of “digital token” got so watered down.”
“I think the definition of digital token needs serious overhaul – either to add back the consumptive purpose concept (which was entirely struck from early drafts) or to re-define a security to be an interest in a company.”
Kobre & Kim attorney Jake Chervinsky, who serves as defense counsel in US government criminal investigations involving securities law, suggests that the final bill could end up quite different from the draft as it goes through a long legislative process and “probably won’t see a vote any time soon.”
In June 2018, SEC Chairman Jay Clayton told CNBC that the Commission has no plans to amend its standards.
“We are not going to do any violence to the traditional definition of a security that has worked for a long time. There’s no need to change the definition.