I 115th CONGRESS 2d Session H. R. 7356 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.

1. Short title This Act may be cited as the Token Taxonomy Act . 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. . 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). 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 . 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 . 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. 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. 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. 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: 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.