The long-awaited Responsible Financial Innovation Act was finally introduced this week, by Republican Senator from Wyoming, Cynthia Lummis, and the Democratic Senator from New York, Kirsten Gillibrand. As expected, there are several integral pieces to this proposed legislation. We will focus on several key areas and how they will impact you. This week we will review the Responsible Taxation of Digital Assets section.
The proposed bill requires the IRS to “adopt guidance or clarifications” on pertinent issues in the Digital Asset industry, including merchant acceptance of digital assets, mining and staking, charitable donations and the very controversial disposition of forks and airdrops. Many of you are aware of the pending lawsuit filed by a couple vs the IRS with respect to staking and taxation of income. This is one we will continue to brief you on as a potential key precedent.
The bill lays out a “de minimis” exclusion of up to $200 per transaction from a taxpayer’s gross income for payments of goods and services. As always, please consult with your professional tax advisor on all matters relating to taxation of Digital Assets. The bill clarifies the tax treatment of different actors, such as miners in the virtual currency system. Miners and validators are not “brokers” for income tax purposes, and their rewards will not be counted as income until redeemed for cash.
In addition, the proposed legislation would ask the Government Accountability Office to “conduct an analysis of the potential opportunities and risks of retirement investing in digital assets”.
As you may be aware, Fidelity recently announced that it would give companies (upon approval) the ability for its 401(k) participants to invest up to 20% of their allocation in Bitcoin. We ask you to consult with your licensed Financial Advisor or CFP® professional to discuss.
DAOs, or Decentralized Autonomous Organizations, have received quite a bit of press in the last year. You may recall the Constitution DAO, the group who attempted to buy a copy of the US Constitution.
The proposed bill “specifies that “certain” DAO’s are business entities for the purposes of the tax code. This would require a DAO to be "incorporated as an LLC, corporation, partnership, foundation, cooperative or similar organization”.
Please DM either Rich or myself on Linkedin or send an email regarding any questions on the proposed piece of legislation. We will continue to discuss other sections of the Responsible Financial Innovation Act and how this may impact you in the future.