Title: Token Taxonomy Act
Policy area: Finance and Financial Sector

Summary:
Token Taxonomy Act
This bill specifies that digital tokens, such as those used in virtual currencies, are not securities for regulatory purposes. The bill also provides for the tax treatment of virtual currencies, including by excluding from gross income any gains from virtual currency transactions up to $600.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7356 Introduced in House (IH)]

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115th CONGRESS
  2d Session
                                H. R. 7356

To amend the Securities Act of 1933 and the Securities Exchange Act of 
 1934 to exclude digital tokens from the definition of a security, to 
    direct the Securities and Exchange Commission to enact certain 
 regulatory changes regarding digital units secured through public key 
    cryptography, to adjust taxation of virtual currencies held in 
individual retirement accounts, to create a tax exemption for exchanges 
 of one virtual currency for another, to create a de minimis exemption 
 from taxation for gains realized from the sale or exchange of virtual 
         currency for other than cash, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           December 20, 2018

Mr. Davidson (for himself and Mr. Soto) introduced the following bill; 
   which was referred to the Committee on Financial Services, and in 
    addition to the Committee on Ways and Means, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
To amend the Securities Act of 1933 and the Securities Exchange Act of 
 1934 to exclude digital tokens from the definition of a security, to 
    direct the Securities and Exchange Commission to enact certain 
 regulatory changes regarding digital units secured through public key 
    cryptography, to adjust taxation of virtual currencies held in 
individual retirement accounts, to create a tax exemption for exchanges 
 of one virtual currency for another, to create a de minimis exemption 
 from taxation for gains realized from the sale or exchange of virtual 
         currency for other than cash, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Token Taxonomy Act''.

SEC. 2. SECURITIES ACT OF 1933.

    (a) Definition of Digital Token.--Section 2(a) of the Securities 
Act of 1933 (15 U.S.C. 77b(a)) is amended by adding at the end the 
following:
            ``(20) Digital token.--The term `digital token' means a 
        digital unit that--
                    ``(A) is created--
                            ``(i) in response to the verification or 
                        collection of proposed transactions;
                            ``(ii) pursuant to rules for the digital 
                        unit's creation and supply that cannot be 
                        altered by a single person or group of persons 
                        under common control; or
                            ``(iii) as an initial allocation of digital 
                        units that will otherwise be created in 
                        accordance with clause (i) or (ii);
                    ``(B) has a transaction history that--
                            ``(i) is recorded in a distributed, digital 
                        ledger or digital data structure in which 
                        consensus is achieved through a mathematically 
                        verifiable process; and
                            ``(ii) after consensus is reached, cannot 
                        be materially altered by a single person or 
                        group of persons under common control;
                    ``(C) is capable of being traded or transferred 
                between persons without an intermediate custodian; and
                    ``(D) is not a representation of a financial 
                interest in a company, including an ownership or debt 
                interest or revenue share.
            ``(21) Digital unit.--The term `digital unit' means a 
        representation of economic, proprietary, or access rights that 
        is stored in a computer-readable format.''.
    (b) Definition of Security.--Section 2(a)(1) of the Securities Act 
of 1933 (15 U.S.C. 77b(a)(1)) is amended--
            (1) by inserting ``(A)'' after ``(1)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Exemption.--Section 4(a) of the Securities Act of 1933 (15 
U.S.C. 77d(a)) is amended by adding at the end the following:
            ``(8) Transactions involving the development, offer, or 
        sale of a digital unit if--
                    ``(A) the person developing, offering, or selling 
                the digital unit has a reasonable and good faith belief 
                that such digital unit is a digital token; and
                    ``(B) within ninety days following a written 
                notification from the Commission to such person that 
                such digital unit has been determined by the Commission 
                to be a security, posts public notice of such 
                notification and takes reasonable efforts to cease all 
                sales and return all proceeds from any sales of such 
                digital unit, excluding funds reasonably spent on the 
                development of technology associated with the digital 
                unit.''.

SEC. 3. SECURITIES EXCHANGE ACT OF 1934.

    (a) Definition of Bank.--Section 3(a)(6)(C) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(6)(C)) is amended--
            (1) by inserting ``or trust company,'' after ``Home Owners' 
        Loan Act,''; and
            (2) by striking ``receiving deposits or exercising 
        fiduciary powers'' and inserting ``receiving deposits, 
        providing custodial services, or exercising fiduciary powers''.
    (b) Definition of Security.--Section 3(a)(10) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)) is amended--
            (1) by inserting ``(A)'' after ``(1)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Definition of Digital Token.--Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end 
the following:
            ``(82) Digital token.--The term `digital token' has the 
        meaning given to it in section 2(a) of the Securities Act of 
        1933.''.
    (d) Clerical Amendments.--Section 3(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)) is amended--
            (1) by moving paragraph (79) so as to appear after 
        paragraph (78); and
            (2) by redesignating the second paragraph (80) (relating to 
        ``Funding portal'') as paragraph (81).

SEC. 4. INVESTMENT ADVISERS ACT OF 1940.

    Section 202(a)(2)(C) of the Investment Advisers Act of 1940 (15 
U.S.C. 80b-2(a)(2)(C)) is amended by striking ``receiving deposits or 
exercising fiduciary powers'' and inserting ``receiving deposits, 
providing custodial services, or exercising fiduciary powers''.

SEC. 5. INVESTMENT COMPANY ACT OF 1940.

    Section 2(a)(5) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(5)) is amended by striking ``receiving deposits or exercising 
fiduciary powers'' and inserting ``receiving deposits, providing 
custodial services, or exercising fiduciary powers''.

SEC. 6. SATISFACTORY CONTROL LOCATION REQUIREMENT.

    Not later than 90 days after the date of the enactment of this Act, 
the Commission shall amend section 240.15c3-3 of title 17, Code of 
Federal Regulations, to provide that the requirement for a satisfactory 
control location is fulfilled by protecting a digital unit (as defined 
under section 2(a) of the Securities Act of 1933) through public key 
cryptography and following commercially reasonable cybersecurity 
practices.

SEC. 7. INDIVIDUAL RETIREMENT ACCOUNT INVESTMENTS IN CERTAIN VIRTUAL 
              CURRENCIES NOT TREATED AS DISTRIBUTIONS.

    (a) In General.--Section 408(m) of the Internal Revenue Code of 
1986 is amended--
            (1) in paragraph (3)--
                    (A) in the heading of the paragraph, by striking 
                ``and bullion'' and inserting ``, bullion, and virtual 
                currencies'';
                    (B) in subparagraph (A)(iv), by striking ``or'';
                    (C) in subparagraph (B), by inserting ``or'' after 
                ``futures contract,'';
                    (D) by inserting after subparagraph (B) the 
                following:
                    ``(C) virtual currency.''; and
                    (E) by striking ``if such bullion'' and inserting 
                ``This paragraph shall only apply to bullion which''; 
                and
            (2) by adding at the end the following:
            ``(4) Virtual currency defined.--For purposes of this 
        subsection, the term `virtual currency' means a digital 
        representation of value that is used as a medium of exchange 
        and is not currency (within the meaning of section 988).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges on or after January 1, 2017.

SEC. 8. CERTAIN EXCHANGES OF VIRTUAL CURRENCY TREATED AS NON-TAXABLE 
              EXCHANGES.

    (a) In General.--Section 1031 of the Internal Revenue Code of 1986 
is amended--
            (1) in the heading, by striking ``real property'' and 
        inserting ``certain property'';
            (2) in subsection (a), by adding at the end the follow new 
        paragraph:
            ``(4) Exchange of virtual currency.--An exchange of virtual 
        currency (as defined under section 408(m)) shall be treated as 
        if such exchange were an exchange of real property under this 
        section.''.
    (b) Clerical Amendment.--The table of parts for part III of 
subchapter O of chapter 1 of such Code is amended by striking 
``Exchange of real property'' and inserting ``Exchange of certain 
property''.
    (c) Effective Date.--The amendments made by this section shall 
apply to exchanges made on or after January 1, 2017.

SEC. 9. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CURRENCY.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
139F the following new section:

``SEC. 139G. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CURRENCY.

    ``(a) In General.--Gross income shall not include gain from the 
sale or exchange of virtual currency (as defined under section 408(m)) 
for other than cash or cash equivalents.
    ``(b) Limitation.--
            ``(1) In general.--The amount of gain excluded from gross 
        income under subsection (a) with respect to a sale or exchange 
        of virtual currency shall not exceed $600.
            ``(2) Aggregation rule.--For purposes of this subsection, 
        all sales or exchanges which are part of the same transaction 
        (or a series of related transactions) shall be treated as one 
        sale or exchange.
    ``(c) Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2018, the dollar amount in 
subsection (b) shall be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `calendar year 2017' for 
        `calendar year 2016' in subparagraph (a)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded 
to the nearest multiple of $50.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 139F the following new item:

``Sec. 139G. Gain from sale or exchange of virtual currency.''.
    (c) Reporting of Gains or Losses.--The Secretary of the Treasury 
shall issue regulations providing for information returns on 
transactions in virtual currency (as defined under section 408(m) of 
the Internal Revenue Code of 1986) for which gain or loss is 
recognized.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to transactions entered into on or after January 1, 
2017.
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