Online Market Protection Act of 2014

To protect cryptocurrencies. 1. Short title This Act may be cited as the Online Market Protection Act of 2014 2. Moratorium (a) Neither the Federal Government nor any State or political subdivision thereof shall impose any statutory restrictions or regulations specifically identifying and governing the creation, use, exploitation, possession or transfer of any algorithmic protocols governing the operation of any virtual, non-physical, algorithm or computer source code-based medium for exchange (collectively, cryptocurrency moratorium period (b) During the moratorium period, the Federal Government and all State governments and political subdivisions thereof shall not impose any further statutory restrictions or regulations affecting Smart Contract platforms such as cryptographic escrow services, multi-signature transactions, and oracles, so as to allow for the growth and facilitation of these important facets of cryptological technology. (c) Federal and State Agencies shall consider cryptocurrencies exempt commodities excluded commodities (d) Federal and State Agencies shall have no jurisdiction over Cryptocurrency Economy Transactions or Bitcoin Economy Transactions. The financial regulations authorizing these agencies are designed to protect users of financial instruments from fraud, manipulation, and other types of misconduct that result in real economic losses; not virtual losses solely within a cryptographic network. (e) Nothing in this Act shall prevent, impair or impede the operation of any government agency, authority or instrumentality, whether of the Federal Government or of any State or political subdivision thereof, to enforce currently existing criminal, civil or taxation statutes and regulations. 3. Definitions (a) Algorithm (b) Algorithmic chain blockchain (c) The cryptographic proof blockchain (d) Protocol (e) Service (f) The phrase using the Internet or other electronic, non-physical medium (g) Cryptocurrency cryptocurrency digital currency virtual currency electronic currency (h) Agencies CFTC SEC FinCEN NYSDFS (i) Smart Contracts (j) Multi-Signature Transactions (k) Cryptographic Escrow Services (l) Oracles (m) Cryptocurrency Economy Transactions Bitcoin Economy Transactions 4. Declaration of moratorium (a) In general It is the public policy of the United States that no new statutes, regulations or advisory opinions be passed, implemented, enforced or issued governing the creation, use, possession or taxation of cryptocurrencies, the protocols governing each and the data, codes, algorithms or other calculations comprising each, until the expiration of the moratorium as provided in this Act. (b) Public interest It is further the public policy of the United States that the development and use of any medium of exchange which utilizes cryptographic proof of and for a transaction of cryptocurrency without the need for or reliance upon third-party intermediaries or verification will enhance the economic well-being of the American people and result in significant economic growth. Given the blockchain’s capacity to serve as a public ledger, software developers are creating mechanisms for smart 5. Declaration of neutral tax treatment (a) In general It is the public policy of the United States that the production, possession or use of cryptocurrency, whether in trade, commerce or personal non-commercial transfers, should not be disfavored or discouraged by the Federal tax code or other Federal or State statute or regulation. (b) Tax treatment It is the public policy of the United States that the current guidance just promulgated and released by the Service in its Notice 2014–21 is advisory, subject to public comment and not in final form pending the expiration of the comment period. As such, Congress believes that the current guidance is less than optimal for the American people and economy, and directs the Service to issue or revise interim regulations consistent with the following. (c) Treatment as currency It is the public policy of the United States that virtual currencies should be treated as currency instead of property in order to foster an equitable tax treatment and prevent a tax treatment that would discourage the use of any cryptocurrency. Tax treatment of cryptocurrency as property does not account for the substantial illiquidity and highly limited acceptance and use of cryptocurrency, and substantially and unfairly discourages taxpayers engaging in a trade or business from using cryptocurrency in commerce. This circumstance is likely to discourage economic activity and stifle innovation and growth. At present, a taxpayer accepting cryptocurrency for goods or services will be taxed on the fair market value of the cryptocurrency despite the fact that exchange rates (from cryptocurrency to conventional currency) are both highly volatile and published or available only on a small number of proto-exchanges in the early stages of development, acceptance and awareness by cryptocurrency users. As a result, current tax treatment will measure income on the basis of an illiquid and likely inaccurate fair market value that exceeds the taxpayer’s true fair market value and hence income, resulting in the risk of a consistent overtaxation or overpayment that will act as a strong deterrent to or penalty for accepting cryptocurrency in payment. Such tax treatment is inconsistent with the tax treatment of secured notes for payment in trade or commerce, which recognizes a discount from the face value of the note due to the illiquid nature of the payment. (Note: See IRS Pub. 525 at 4.) (d) Revenue in trade or business; taxation upon monetizing event It is the public policy of the United States that taxpayers accepting cryptocurrency in trade or commerce should be deemed to realize actual income only when cryptocurrency is monetized through conversion or exchange into dollars or any official government currency, and that fair market value should be calculated as net proceeds from the conversion. (Note: This treatment seeks to achieve the most accurate and fair measure of actual income received, as distinguished from theoretical income in the form of cryptocurrency which, until its conversion to dollars, remains under substantial risk of diminution from illiquidity or other conversion risks or inefficiencies. This treatment is consistent with tax treatment of statutory stock options where the taxable event is not the receipt or exercise of the option, but the sale of the underlying stock for proceeds in cash. The goal here is to have income taxed when the income is actual instead of theoretical and subject to substantial if not total risk of loss through liquidity problems, exchange problems or other barriers to monetization.) Accordingly, as it is the further public policy of the United States that income on cryptocurrency received in trade or business should be defined as the net proceeds from conversion of the received cryptocurrency into dollars, the Service is hereby directed to revise or issue interim regulations consistent herewith. (e) Revenue from mining or creation of cryptocurrency It is the public policy of the United States that the Service’s guidance that taxpayers should have the fair market value of the cryptocurrency they successfully mine 6. Severability If any provision of this title, or any amendment made by this title, or the application of that provision to any person or circumstance, is held by a court of competent jurisdiction to violate any provision of the Constitution of the United States, then the other provisions of that title, and the application of that provision to other persons and circumstances, shall not be affected.

Summary: Online Market Protection Act of 2014 - Prohibits, for a five-year moratorium period beginning June 1, 2015, federal, state, and local governments from imposing statutory restrictions or regulations specifically identifying and governing the creation, use, exploitation, possession, or transfer of any algorithmic protocols governing the operation of any virtual, non-physical algorithm or computer source code-based medium for exchange (cryptocurrency). Defines cryptocurrency as a popular term encompassing code-based protocols supporting an electronic, non-physical medium for the exchange of value. Prohibits all such governmental entities, during the moratorium period, from imposing further statutory restrictions or regulations affecting Smart Contract platforms such as cryptographic escrow services, multi-signature transactions, and oracles in order to allow for the growth and facilitation of these facets of cryptological technology. Requires federal and state agencies to consider cryptocurrencies "exempt commodities" akin to gold and silver, rather than "excluded commodities" such as national fiat currencies. Declares that the Bitcoin cryptological protocol is not strictly a currency, but rather a broad multifaceted protocol which allows for myriad novel applications. Denies federal and state agencies jurisdiction over Cryptocurrency Economy Transactions or Bitcoin Economy Transactions. States it is the public policy of the United States that: until the expiration of the five-year moratorium no new statutes, regulations, or advisory opinions be passed, implemented, enforced, or issued governing the creation, use, possession or taxation of cryptocurrencies, including governing protocols, data, codes, algorithms, or other calculations; development and use of any medium of exchange which utilizes cryptographic proof of and for a transaction of cryptocurrency without the need for or reliance upon third-party intermediaries or verification will enhance the economic well-being of the American people and result in significant economic growth; production, possession or use of cryptocurrency, whether in trade, commerce, or personal non-commercial transfers, should not be disfavored or discouraged by either the federal tax code or other governmental statute or regulation; and the current guidance released by the Internal Revenue Service (IRS) in its Notice 2014-21 is advisory, subject to public comment, and not in final form pending the expiration of the comment period, and is less than optimal for the American people and economy. Directs the IRS to issue or revise interim regulations consistent with U.S. public policy that: virtual currencies should be treated as currency instead of property in order to foster an equitable tax treatment and prevent a tax treatment that would discourage the use of cryptocurrency; taxpayers accepting cryptocurrency in trade or commerce should be deemed to realize actual income only when cryptocurrency is monetized through conversion or exchange into dollars or any official government currency, and that fair market value should be calculated as net proceeds from the conversion; and mined or produced cryptocurrency should be taxed as income only when actual income is realized by a transfer and conversion of proceeds into dollars.