Outgoing United States Representative Steve Stockman of Texas has proposed a bill, H.R. 5777 that if it became law would impose a moratorium of five years on regulatory and statutory constraints upon cryptocurrency, as well as changing the treatment of cryptocurrencies under United States tax law to that enjoyed by traditional currencies. The moratorium proposed would apply to regulations and statutes at both the state and federal level. The chance this bill passes either house of the legislature is remote given a lack of support and Stockman's limited remaining time in Congress. If it makes it out of Congress its chance of becoming law would still be rather remote, because it would arrive on Obama's desk and require his signature. At present the bill has been introduced to the floor of the House and referred to both the House Finance Committee and the House Ways and Means Committee.

Representative Stockman lost the Republican primary election this spring when he challenged incumbent John Cornyn for the chance to run for his seat in the Senate. Full text of the proposed bill is below:

                    IN THE HOUSE OF REPRESENTATIVES

                            December 1, 2014

 Mr. Stockman 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 protect cryptocurrencies.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This title may be cited as the ``Cryptocurrency Protocol Protection 
and Moratorium Act'' (also, ``CryptPMA'').

SEC. 2. MORATORIUM.

    (a) Neither the Federal Government nor any State or political 
subdivision thereof shall impose any statutory restrictions or 
regulations specifically identifying and governing the creation, use, 
exploitation, possession or transfer of any algorithmic protocols 
governing the operation of any virtual, non-physical, algorithm or 
computer source code-based medium for exchange (collectively, 
``cryptocurrency'' as defined herein) for a period beginning June 1, 
2015, and extending five years after the enactment of this Act (such 
period, the ``moratorium period''), except for statutes already enacted 
and effective prior to the date of enactment of this Act, and further 
suspending the enactment and effectiveness of any and all pending 
statutes and regulations until the end of the aforementioned moratorium 
period, except as otherwise provided in this section.
    (b) Nothing in this Act shall prevent, impair or impede the 
operation of any government agency, authority or instrumentality, 
whether of the Federal Government or of any State or political 
subdivision thereof, to enforce currently existing criminal, civil or 
taxation statutes and regulations.

SEC. 3. DEFINITIONS.

    (a) ``Algorithm'' is defined as a procedure for solving a 
mathematical problem in a finite number of steps performed by a 
computer.
    (b) ``Algorithmic chain'' is a series or chain of bits of data 
comprising a unique string of data which is the basis for the 
cryptographic proof of a valid transfer or transaction of 
cryptocurrencies. The algorithmic chain for a cryptocurrency is 
commonly referred to as a ``blockchain''.
    (c) The ``cryptographic proof'' for each transaction or transfer is 
based on one unique algorithmic chain, distinct from all previously 
existing algorithms and neither replicable nor reusable yet sharing 
with all other units at least one common source code element in the 
algorithmic chain (or ``blockchain'') in the transferor's existing 
bitcoin or bitcoins.
    (d) ``Protocol'' refers to procedures or guidelines governing the 
creation, development and operation of a cryptocurrency.
    (e) ``Service'' is defined as the Internal Revenue Service.
    (f) The phrase ``using the Internet or other electronic, non-
physical medium'' means by placement of material in a computer server-
based file archive so that it is publicly accessible, on, through, or 
over the Internet, using hypertext transfer protocol, file transfer 
protocol, or other similar protocols.
    (g) ``Cryptocurrency'' is a popular term encompassing code-based 
protocols supporting an electronic, non-physical media for the exchange 
of value, and for the sake of both clarity and the avoidance of 
confusion in the mind of the public, based on the prior use of this 
term by the Internal Revenue Service in its initial guidance (see 
Notice 2014-21, released March 26, 2014) this term is used herein. 
However, it is believed ``cryptocurrency'' encompasses the same 
protocols as those covered by terms such as ``digital currency'', 
``virtual currency'' or ``electronic currency''.

SEC. 4. DECLARATION OF MORATORIUM.

    (a) In General.--It is the sense of Congress that no new statutes, 
regulations or advisory opinions be passed, implemented, enforced or 
issued governing the creation, use, possession or taxation of 
cryptocurrencies, the protocols governing each and the data, codes, 
algorithms or other calculations comprising each, until the expiration 
of the moratorium as provided in this Act.
    (b) Public Interest.--It is further the sense of Congress that the 
development and use of any media for exchange which possesses the 
characteristic of cryptographic proof of and for a transaction of 
cryptocurrency without the need for or reliance upon third-party 
intermediaries or verification is a circumstance that is likely to 
result in economic and other efficiencies for the American people and 
other participants in the domestic economy, and as such may be crucial 
to overall economic growth, will enhance the economic well-being of the 
American people and will otherwise be in the public interest.

SEC. 5. DECLARATION OF NEUTRAL TAX TREATMENT.

    (a) In General.--It is the sense of Congress that the production, 
possession or use of cryptocurrency, whether in trade, commerce or 
personal non-commercial transfers, should not be disfavored or 
discouraged by the Federal tax code or other Federal or State statute 
or regulation.
    (b) Tax Treatment.--It is the sense of Congress that the current 
guidance just promulgated and released by the Service in its Notice 
2014-21 is advisory, subject to public comment and not in final form 
pending the expiration of the comment period. As such, Congress 
believes that the current guidance is less than optimal for the 
American people and economy, and directs the Service to issue or revise 
interim regulations consistent with the following.
    (c) Treatment as Currency.--It is the sense of Congress that 
virtual currencies should be treated as currency instead of property in 
order to foster an equitable tax treatment and prevent a tax treatment 
that would discourage the use of any cryptocurrency. Tax treatment of 
cryptocurrency as property does not account for the substantial 
illiquidity and highly limited acceptance and use of cryptocurrency, 
and substantially and unfairly discourages taxpayers engaging in a 
trade or business from using cryptocurrency in commerce. This 
circumstance is likely to discourage economic activity and stifle 
innovation and growth. At present, a taxpayer accepting cryptocurrency 
for goods or services will be taxed on the fair market value of the 
cryptocurrency despite the fact that exchange rates (from 
cryptocurrency to conventional currency) are both highly volatile and 
published or available only on a small number of proto-exchanges in the 
early stages of development, acceptance and awareness by cryptocurrency 
users. As a result, current tax treatment will measure income on the 
basis of an illiquid and likely inaccurate fair market value that 
exceeds the taxpayer's true fair market value and hence income, 
resulting in the risk of a consistent overtaxation or overpayment that 
will act as a strong deterrent to or penalty for accepting 
cryptocurrency in payment. Such tax treatment is inconsistent with the 
tax treatment of secured notes for payment in trade or commerce, which 
recognizes a discount from the face value of the note due to the 
illiquid nature of the payment. (Note: See IRS Pub. 525 at 4.)
    (d) Revenue in Trade or Business; Taxation Upon Monetizing Event.--
It is the sense of Congress that taxpayers accepting cryptocurrency in 
trade or commerce should be deemed to realize actual income only when 
cryptocurrency is monetized through conversion or exchange into dollars 
or any official government currency, and that fair market value should 
be calculated as net proceeds from the conversion. (Note: This 
treatment seeks to achieve the most accurate and fair measure of actual 
income received, as distinguished from theoretical income in the form 
of cryptocurrency which, until its conversion to dollars, remains under 
substantial risk of diminution from illiquidity or other conversion 
risks or inefficiencies. This treatment is consistent with tax 
treatment of statutory stock options where the taxable event is not the 
receipt or exercise of the option, but the sale of the underlying stock 
for proceeds in cash. The goal here is to have income taxed when the 
income is actual instead of theoretical and subject to substantial if 
not total risk of loss through liquidity problems, exchange problems or 
other barriers to monetization.) Accordingly, as it is the further 
sense of Congress that income on cryptocurrency received in trade or 
business should be defined as the net proceeds from conversion of the 
received cryptocurrency into dollars, the Service is hereby directed to 
revise or issue interim regulations consistent herewith.
    (e) Revenue From Mining or Creation of Cryptocurrency.--It is the 
sense of Congress that the Service's guidance that taxpayers should 
have the fair market value of the cryptocurrency they successfully 
``mine'' or produce included in gross income is inequitable, overstates 
actual income by overstating fair market value by not accounting for 
the liquidity risk or the risk that substantial effort may yield no 
production, and strongly and unfairly penalizes or discourages such 
income producing efforts and deters economic growth, activity and 
innovation. Accordingly, as it is the further sense of Congress that 
mined produced cryptocurrency should be taxed as income only when 
actual income is realized by a transfer and conversion of proceeds into 
dollars, the Service is hereby directed to revise or issue interim 
regulations consistent herewith.

SEC. 6. SEVERABILITY.

    If any provision of this title, or any amendment made by this 
title, or the application of that provision to any person or 
circumstance, is held by a court of competent jurisdiction to violate 
any provision of the Constitution of the United States, then the other 
provisions of that title, and the application of that provision to 
other persons and circumstances, shall not be affected.