of 2019

I 116TH CONGRESS 1ST SESSION H. R. 2144 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 regu- latory changes regarding digital units secured through public key cryptog- raphy, to adjust taxation of virtual currencies held in individual retire- ment 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 APRIL 9, 2019 Mr. DAVIDSON of Ohio (for himself, Mr. SOTO, Mr. GOTTHEIMER, Mr. BUDD, Ms. GABBARD, and Mr. PERRY) 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 deter- mined 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 an- other, to create a de minimis exemption from taxation VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6652 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 2 •HR 2144 IH 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Token Taxonomy Act 4 of 2019’’. 5 SEC. 2. SECURITIES ACT OF 1933. 6 (a) DEFINITION OF DIGITAL TOKEN.—Section 2(a) 7 of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amend- 8 ed by adding at the end the following: 9 ‘‘(20) DIGITAL TOKEN.—The term ‘digital 10 token’ means a digital unit— 11 ‘‘(A) that is created— 12 ‘‘(i) in response to the verification or 13 collection of proposed transactions; 14 ‘‘(ii) pursuant to rules for the digital 15 unit’s creation and supply that cannot be 16 altered by any single person or persons 17 under common control; or 18 ‘‘(iii) as an initial allocation of digital 19 units that will otherwise be created in ac- 20 cordance with clause (i) or (ii); 21 ‘‘(B) that has a transaction history that— 22 ‘‘(i) is recorded in a distributed, dig- 23 ital ledger or digital data structure in 24 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 3 •HR 2144 IH which consensus is achieved through a 1 mathematically verifiable process; and 2 ‘‘(ii) after consensus is reached, re- 3 sists modification or tampering by any sin- 4 gle person or group of persons under com- 5 mon control; 6 ‘‘(C) that is capable of being transferred 7 between persons without an intermediate custo- 8 dian; and 9 ‘‘(D) that is not a representation of a fi- 10 nancial interest in a company or partnership, 11 including an ownership interest or revenue 12 share. 13 ‘‘(21) DIGITAL UNIT.—The term ‘digital unit’ 14 means a representation of economic, proprietary, or 15 access rights that is stored in a computer-readable 16 format.’’. 17 (b) DEFINITION OF SECURITY.—Section 2(a)(1) of 18 the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) is 19 amended— 20 (1) by inserting ‘‘(A)’’ after ‘‘(1)’’; and 21 (2) by adding at the end the following: 22 ‘‘(B) Such term does not include a digital 23 token.’’. 24 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 4 •HR 2144 IH (c) EXEMPTION.—Section 4(a) of the Securities Act 1 of 1933 (15 U.S.C. 77d(a)) is amended by adding at the 2 end the following: 3 ‘‘(8) Transactions involving the offer, pro- 4 motion, or sale of a digital unit if— 5 ‘‘(A) the person offering, promoting, or 6 selling the digital unit has a reasonable and 7 good faith belief that such digital unit is a dig- 8 ital token; and 9 ‘‘(B) within ninety days following a written 10 notification from the Commission to such per- 11 son that such digital unit has been determined 12 by the Commission to be a security, posts pub- 13 lic notice of such notification and takes reason- 14 able efforts to cease all sales and return all pro- 15 ceeds from any sales of such digital unit, ex- 16 cluding funds reasonably spent on the develop- 17 ment of technology associated with the digital 18 unit.’’. 19 (d) PREEMPTION OF STATE LAW.—Section 18 of the 20 Securities Act of 1933 (15 U.S.C. 77r) is amended— 21 (1) by redesignating subsection (d) as sub- 22 section (e); and 23 (2) by inserting after subsection (c) the fol- 24 lowing: 25 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 5 •HR 2144 IH ‘‘(d) DIGITAL TOKENS.— 1 ‘‘(1) IN GENERAL.—No law, rule, regulation, or 2 order, or other administrative action of any State or 3 any political subdivision thereof— 4 ‘‘(A) requiring, or with respect to, registra- 5 tion or qualification of securities, or registration 6 or qualification of securities transactions, shall 7 directly or indirectly apply to a digital token; 8 ‘‘(B) shall directly or indirectly prohibit, 9 limit, or impose any conditions upon the use 10 of— 11 ‘‘(i) with respect to a digital token, 12 any disclosure document concerning an 13 offer or sale of a digital token that is pre- 14 pared by or on behalf of a person devel- 15 oping, offering, or selling a digital token; 16 or 17 ‘‘(ii) any proxy statement, report to 18 digital token-holders, or other disclosure 19 document relating to a digital token or a 20 person developing, offering, or selling a 21 digital token; 22 ‘‘(C) shall directly or indirectly prohibit, 23 limit, or impose conditions, based on the merits 24 of a digital token offering or a person devel- 25 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 6 •HR 2144 IH oping, offering, or selling a digital token, upon 1 the offer or sale of any digital token; or 2 ‘‘(D) shall directly or indirectly require the 3 filing of any notices or other documents, or the 4 assessment of any fees, with respect to digital 5 tokens or digital token transactions. 6 ‘‘(2) PRESERVATION OF FRAUD AUTHORITY.— 7 States and political subdivisions thereof shall retain 8 jurisdiction under the laws of such State to inves- 9 tigate and bring enforcement actions with respect to 10 fraud or deceit, or unlawful conduct by any person, 11 in connection with digital tokens or digital token 12 transactions.’’. 13 SEC. 3. SECURITIES EXCHANGE ACT OF 1934. 14 (a) DEFINITION OF BANK.—Section 3(a)(6)(C) of 15 the Securities Exchange Act of 1934 (15 U.S.C. 16 78c(a)(6)(C)) is amended— 17 (1) by inserting ‘‘or trust company,’’ after 18 ‘‘Home Owners’ Loan Act,’’; and 19 (2) by striking ‘‘receiving deposits or exercising 20 fiduciary powers’’ and inserting ‘‘receiving deposits, 21 providing custodial services, or exercising fiduciary 22 powers’’. 23 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 7 •HR 2144 IH (b) DEFINITION OF SECURITY.—Section 3(a)(10) of 1 the Securities Exchange Act of 1934 (15 U.S.C. 2 78c(a)(10)) is amended— 3 (1) by inserting ‘‘(A)’’ after ‘‘(1)’’; and 4 (2) by adding at the end the following: 5 ‘‘(B) Such term does not include a digital 6 token.’’. 7 (c) DEFINITION OF DIGITAL TOKEN.—Section 3(a) 8 of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) 9 is amended by adding at the end the following: 10 ‘‘(82) DIGITAL TOKEN.—The term ‘digital 11 token’ has the meaning given to it in section 2(a) of 12 the Securities Act of 1933.’’. 13 (d) CLERICAL AMENDMENTS.—Section 3(a) of the 14 Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is 15 amended— 16 (1) by moving paragraph (79) so as to appear 17 after paragraph (78); and 18 (2) by redesignating the second paragraph (80) 19 (relating to ‘‘Funding portal’’) as paragraph (81). 20 SEC. 4. INVESTMENT ADVISERS ACT OF 1940. 21 (a) DEFINITION OF DIGITAL TOKEN.—Section 22 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 23 80b–2(a)) is amended— 24 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 8 •HR 2144 IH (1) by redesignating the second paragraph (29) 1 as paragraph (31); and 2 (2) by adding at the end the following: 3 ‘‘(32) The term ‘digital token’ has the meaning 4 given to it in section 2(a) of the Securities Act of 5 1933.’’. 6 (b) DEFINITION OF SECURITY.—Section 202(a)(18) 7 of the Investment Advisers Act of 1940 (15 U.S.C. 80b– 8 2(a)(18)) is amended— 9 (1) by inserting ‘‘(A)’’ after ‘‘(18)’’; and 10 (2) by adding at the end the following: 11 ‘‘(B) Such term does not include a digital 12 token.’’. 13 (c) DEFINITION OF BANK.—Section 202(a)(2)(C) of 14 the Investment Advisers Act of 1940 (15 U.S.C. 80b– 15 2(a)(2)(C)) is amended by striking ‘‘receiving deposits or 16 exercising fiduciary powers’’ and inserting ‘‘receiving de- 17 posits, providing custodial services, or exercising fiduciary 18 powers’’. 19 SEC. 5. INVESTMENT COMPANY ACT OF 1940. 20 (a) DEFINITION OF DIGITAL TOKEN.—Section 21 202(a) of the Investment Company Act of 1940 (15 22 U.S.C. 80a–2(a)) is amended by adding at the end the 23 following: 24 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 9 •HR 2144 IH ‘‘(55) The term ‘digital token’ has the meaning 1 given to it in section 2(a) of the Securities Act of 2 1933.’’. 3 (b) DEFINITION OF SECURITY.—Section 202(a)(36) 4 of the Investment Company Act of 1940 (15 U.S.C. 80a– 5 2(a)(36)) is amended— 6 (1) by inserting ‘‘(A)’’ after ‘‘(36)’’; and 7 (2) by adding at the end the following: 8 ‘‘(B) Such term does not include a digital 9 token.’’. 10 (c) DEFINITION OF BANK.—Section 2(a)(5) of the 11 Investment Company Act of 1940 (15 U.S.C. 80a– 12 2(a)(5)) is amended by striking ‘‘receiving deposits or ex- 13 ercising fiduciary powers’’ and inserting ‘‘receiving depos- 14 its, providing custodial services, or exercising fiduciary 15 powers’’. 16 SEC. 6. RULE OF CONSTRUCTION WITH RESPECT TO CFTC 17 AND FTC. 18 Nothing in this Act or the amendments made by this 19 Act shall be construed to limit the application of the Com- 20 modity Exchange Act or the Federal Trade Commission 21 Act. 22 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 10 •HR 2144 IH SEC. 7. SATISFACTORY CONTROL LOCATION REQUIRE- 1 MENT. 2 Not later than 90 days after the date of the enact- 3 ment of this Act, the Commission shall amend section 4 240.15c3–3 of title 17, Code of Federal Regulations, to 5 provide that the requirement for a satisfactory control lo- 6 cation for any digital unit (as defined under section 2(a) 7 of the Securities Act of 1933) that is a security is fulfilled 8 by protecting the digital unit using public key cryptog- 9 raphy and by following commercially reasonable cybersecu- 10 rity practices to maintain the privacy and accessibility of 11 sufficient private key material to solely be able to sign on 12 behalf of such digital unit. 13 SEC. 8. INDIVIDUAL RETIREMENT ACCOUNT INVESTMENTS 14 IN CERTAIN VIRTUAL CURRENCIES NOT 15 TREATED AS DISTRIBUTIONS. 16 (a) IN GENERAL.—Section 408(m) of the Internal 17 Revenue Code of 1986 is amended— 18 (1) in paragraph (3)— 19 (A) in the heading of the paragraph, by 20 striking ‘‘AND BULLION’’ and inserting ‘‘, BUL- 21 LION, AND VIRTUAL CURRENCIES’’; 22 (B) in subparagraph (A)(iv), by striking 23 ‘‘or’’; 24 (C) in subparagraph (B), by inserting ‘‘or’’ 25 after ‘‘futures contract,’’; 26 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 11 •HR 2144 IH (D) by inserting after subparagraph (B) 1 the following: 2 ‘‘(C) virtual currency.’’; and 3 (E) by striking ‘‘if such bullion’’ and in- 4 serting ‘‘This paragraph shall only apply to bul- 5 lion which’’; and 6 (2) by adding at the end the following: 7 ‘‘(4) VIRTUAL CURRENCY DEFINED.—For pur- 8 poses of this subsection, the term ‘virtual currency’ 9 means a digital representation of value that is used 10 as a medium of exchange and is not currency (with- 11 in the meaning of section 988).’’. 12 (b) EFFECTIVE DATE.—The amendments made by 13 this section shall apply to sales or exchanges on or after 14 January 1, 2017. 15 SEC. 9. CERTAIN EXCHANGES OF VIRTUAL CURRENCY 16 TREATED AS NON-TAXABLE EXCHANGES. 17 (a) IN GENERAL.—Section 1031 of the Internal Rev- 18 enue Code of 1986 is amended— 19 (1) in the heading, by striking ‘‘REAL PROP- 20 ERTY’’ and inserting ‘‘CERTAIN PROPERTY’’; and 21 (2) in subsection (a), by adding at the end the 22 follow new paragraph: 23 ‘‘(4) EXCHANGE OF VIRTUAL CURRENCY.—An 24 exchange of virtual currency (as defined under sec- 25 VerDate Sep 11 2014 02:48 Apr 17, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H2144.IH H2144 kjohnson on DSK79L0C42 with BILLS 12 •HR 2144 IH tion 408(m)) shall be treated as if such exchange 1 were an exchange of real property under this sec- 2 tion.’’. 3 (b) CLERICAL AMENDMENT.—The table of parts for 4 part III of subchapter O of chapter 1 of such Code is 5 amended by striking ‘‘Exchange of real property’’ and in- 6 serting ‘‘Exchange of certain property’’. 7 (c) EFFECTIVE DATE.—The amendments made by 8 this section shall apply to exchanges made on or after Jan- 9 uary 1, 2017. 10 SEC. 10. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CUR- 11 RENCY. 12 (a) IN GENERAL.—Part III of subchapter B of chap- 13 ter 1 of the Internal Revenue Code of 1986 is amended 14 by inserting after section 139F the following new section: 15 ‘‘SEC. 139G. GAIN FROM SALE OR EXCHANGE OF VIRTUAL 16 CURRENCY. 17 ‘‘(a) IN GENERAL.—Gross income shall not include 18 gain from the sale or exchange of virtual currency (as de- 19 fined under [Text truncated for display. Full text available on Congress.gov.]