By Andrew Zirkle|WASHINGTON
Hidden within the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017”, also known as S.1241, are far-reaching regulatory provisions expected to heavily affect users, traders, and holders of all types of cryptocurrencies, including Bitcoin.
The bill was pushed into a Judiciary Committee hearing on the 28th of November, without much notice to the public. The bulk of the 2-hour hearing focused on other elements of the bill, with the only mention of cryptocurrency happening very briefly during a discussion on money laundering. The hearing also featured a testimony from Kathryn Haun, who is on the Coinbase board of directors. She did not mention any information regarding cryptocurrency or its exchanges.
The bill, which contains 20 sections, was written under the guise of preventing illegal money operations. However, its relatively small changes to the legal status of cryptocurrency are expected to have far-reaching ramifications. Section 13 of the bill indicates that “digital currency” is to be added to the list of items that the US Treasury Department will consider as “financial institutions.” Although this change in legal definition may seem small, the impacts it would have for cryptocurrency users would be significant.
The owners of cryptocurrency would be required to report their holdings in cryptocurrency to the IRS as assets, and also may be required to pay a long-term capital gains tax of up to 25%, or regular federal income tax of up to 39.6%, on the revenue earned from selling cryptocurrency for more than its previous value. Holders of cryptocurrency who do not report their holdings as assets to the IRS would be subject to tax evasion penalties or jail time. The bill fails to address many of the complexities of digital currencies, including the tax protocol for exchanging US Dollars for cryptocurrency multiple times before selling back to dollars, as well as any tax burdens that may be held by cryptocurrency exchanges.
The measure also subjects holders of cryptocurrency to more government scrutiny, meaning individuals who are believed to be misrepresenting their crypto holdings or transactions could have their financial information seized by the IRS or subpoenaed in court. Section 13 of the bill also requires the “detailing a strategy to interdict and detect…digital currencies…at border crossings and other ports of entry for the United States.” This means that even someone with basic electronic equipment could be questioned or searched by border and customs officials, as well as the TSA.
Although the bill does contain a lot of important updates to the criminal code regarding money laundering, many in the cryptocurrency community are calling for a re-examination of the bill itself and section 13, as it is widely believed that it does not properly account for the nature of cryptocurrencies in its attempts to regulate.