- The Token Taxonomy Act has been re-tabled more than two years after it was first submitted
- The act hopes to distinguish digital assets from other securities and change their taxation
- The Token Taxonomy Act has failed to make it to the vote stage on two prior occasions
The Token Taxonomy Act, which first saw the light of day back in December 2018, has been dusted off and filed again by congressman Warren Davidson. The Token Taxonomy Act aims to take digital assets outside the sphere of general securities and have them regulated in an entirely separate way, a move that would represent the first major amendments to securities laws since the 1940s. Davidson’s previous introductions of the Token Taxonomy Act have not got as far as a vote, but he is trying again under a new president, although the contents of the bill remain unchanged.
Thank you to @RepDarrenSoto, @RepJoshG, @RepTedBudd, & @RepScottPerry for cosponsoring my #TokenTaxonomyAct. It’s time for Congress to give this emerging industry the clarity it needs to continue changing the world with #blockchain. https://t.co/fmAfeKQXGN
— Warren Davidson (@WarrenDavidson) March 10, 2021
Token Taxonomy Act Wants to Change Securities and Tax Law
Currently, digital assets are judged against the Howey Test for securities, which dates back to 1946. However, many have argued that the Howey Test isn’t suitable for a new asset class like cryptocurrencies, and so an adaptation is needed, or as Davidson sees it, an entirely new method of testing and taxation.
The Token Taxonomy Act, which has remained unchanged from when it was first tabled in 2018, calls for changes to both the way digital assets are assessed and the taxation around them:
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 for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.
“Don’t Hold Your Breath”
Given that many of those in congress appear to be skeptical of cryptocurrencies, the idea of them giving any kind of tax exemption and agreeing to and rewrite the securities rulebook after 75 years is not promising. However, this hasn’t stopped representatives Ted Budd, Darren Soto, Scott Perry, and Josh Gottheimer from co-sponsoring the Token Taxonomy Act, which Davidson will hope gets over the first hurdle this time round.
However, the chances of success are unlikely if the opinion of lawyer and DeFi Alliance Regulatory Taskforce co-lead Jake Chervinsky are to be believed – in 2019 he noted that “there will be months or years of Committee hearings & revisions before the bill could even possibly see a vote” and advised supporters, “Don’t hold your breath.”