[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1628 Introduced in House (IH)]

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117th CONGRESS
  1st Session
                                H. R. 1628

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 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

                             March 8, 2021

Mr. Davidson (for himself, Mr. Soto, Mr. Budd, Mr. Gottheimer, 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 determined 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 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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Token Taxonomy Act of 2021''.

SEC. 2. SECURITIES ACT OF 1933.

    (a) Definition of Digital Token.--Section 2(a) of the Securities 
Act of 1933 (15 U.S.C. 77b(a)) is amended by adding at the end the 
following:
            ``(20) Digital token.--The term `digital token' means a 
        digital unit--
                    ``(A) that is created--
                            ``(i) in response to the verification or 
                        collection of proposed transactions;
                            ``(ii) pursuant to rules for the digital 
                        unit's creation and supply that cannot be 
                        altered by any single person or persons under 
                        common control; or
                            ``(iii) as an initial allocation of digital 
                        units that will otherwise be created in 
                        accordance with clause (i) or (ii);
                    ``(B) that has a transaction history that--
                            ``(i) is recorded in a distributed, digital 
                        ledger or digital data structure in which 
                        consensus is achieved through a mathematically 
                        verifiable process; and
                            ``(ii) after consensus is reached, resists 
                        modification or tampering by any single person 
                        or group of persons under common control;
                    ``(C) that is capable of being transferred between 
                persons without an intermediate custodian; and
                    ``(D) that is not a representation of a financial 
                interest in a company or partnership, including an 
                ownership interest or revenue share.
            ``(21) Digital unit.--The term `digital unit' means a 
        representation of economic, proprietary, or access rights that 
        is stored in a computer-readable format.''.
    (b) Definition of Security.--Section 2(a)(1) of the Securities Act 
of 1933 (15 U.S.C. 77b(a)(1)) is amended--
            (1) by inserting ``(A)'' after ``(1)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Exemption.--Section 4(a) of the Securities Act of 1933 (15 
U.S.C. 77d(a)) is amended by adding at the end the following:
            ``(8) Transactions involving the offer, promotion, or sale 
        of a digital unit if--
                    ``(A) the person offering, promoting, or selling 
                the digital unit has a reasonable and good faith belief 
                that such digital unit is a digital token; and
                    ``(B) within ninety days following a written 
                notification from the Commission to such person that 
                such digital unit has been determined by the Commission 
                to be a security, posts public notice of such 
                notification and takes reasonable efforts to cease all 
                sales and return all proceeds from any sales of such 
                digital unit, excluding funds reasonably spent on the 
                development of technology associated with the digital 
                unit.''.
    (d) Preemption of State Law.--Section 18 of the Securities Act of 
1933 (15 U.S.C. 77r) is amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following:
    ``(d) Digital Tokens.--
            ``(1) In general.--No law, rule, regulation, or order, or 
        other administrative action of any State or any political 
        subdivision thereof--
                    ``(A) requiring, or with respect to, registration 
                or qualification of securities, or registration or 
                qualification of securities transactions, shall 
                directly or indirectly apply to a digital token;
                    ``(B) shall directly or indirectly prohibit, limit, 
                or impose any conditions upon the use of--
                            ``(i) with respect to a digital token, any 
                        disclosure document concerning an offer or sale 
                        of a digital token that is prepared by or on 
                        behalf of a person developing, offering, or 
                        selling a digital token; or
                            ``(ii) any proxy statement, report to 
                        digital token-holders, or other disclosure 
                        document relating to a digital token or a 
                        person developing, offering, or selling a 
                        digital token;
                    ``(C) shall directly or indirectly prohibit, limit, 
                or impose conditions, based on the merits of a digital 
                token offering or a person developing, offering, or 
                selling a digital token, upon the offer or sale of any 
                digital token; or
                    ``(D) shall directly or indirectly require the 
                filing of any notices or other documents, or the 
                assessment of any fees, with respect to digital tokens 
                or digital token transactions.
            ``(2) Preservation of fraud authority.--States and 
        political subdivisions thereof shall retain jurisdiction under 
        the laws of such State to investigate and bring enforcement 
        actions with respect to fraud or deceit, or unlawful conduct by 
        any person, in connection with digital tokens or digital token 
        transactions.''.

SEC. 3. SECURITIES EXCHANGE ACT OF 1934.

    (a) Definition of Bank.--Section 3(a)(6)(C) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(6)(C)) is amended--
            (1) by inserting ``or trust company,'' after ``Home Owners' 
        Loan Act,''; and
            (2) by striking ``receiving deposits or exercising 
        fiduciary powers'' and inserting ``receiving deposits, 
        providing custodial services, or exercising fiduciary powers''.
    (b) Definition of Security.--Section 3(a)(10) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)) is amended--
            (1) by inserting ``(A)'' after ``(1)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Definition of Digital Token.--Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end 
the following:
            ``(82) Digital token.--The term `digital token' has the 
        meaning given to it in section 2(a) of the Securities Act of 
        1933.''.
    (d) Clerical Amendments.--Section 3(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)) is amended--
            (1) by moving paragraph (79) so as to appear after 
        paragraph (78); and
            (2) by redesignating the second paragraph (80) (relating to 
        ``Funding portal'') as paragraph (81).

SEC. 4. INVESTMENT ADVISERS ACT OF 1940.

    (a) Definition of Digital Token.--Section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended--
            (1) by redesignating the second paragraph (29) as paragraph 
        (31); and
            (2) by adding at the end the following:
            ``(32) The term `digital token' has the meaning given to it 
        in section 2(a) of the Securities Act of 1933.''.
    (b) Definition of Security.--Section 202(a)(18) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)(18)) is amended--
            (1) by inserting ``(A)'' after ``(18)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Definition of Bank.--Section 202(a)(2)(C) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)(2)(C)) is amended by striking 
``receiving deposits or exercising fiduciary powers'' and inserting 
``receiving deposits, providing custodial services, or exercising 
fiduciary powers''.

SEC. 5. INVESTMENT COMPANY ACT OF 1940.

    (a) Definition of Digital Token.--Section 202(a) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by adding at the 
end the following:
            ``(55) The term `digital token' has the meaning given to it 
        in section 2(a) of the Securities Act of 1933.''.
    (b) Definition of Security.--Section 202(a)(36) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(36)) is amended--
            (1) by inserting ``(A)'' after ``(36)''; and
            (2) by adding at the end the following:
            ``(B) Such term does not include a digital token.''.
    (c) Definition of Bank.--Section 2(a)(5) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2(a)(5)) is amended by striking ``receiving 
deposits or exercising fiduciary powers'' and inserting ``receiving 
deposits, providing custodial services, or exercising fiduciary 
powers''.

SEC. 6. RULE OF CONSTRUCTION WITH RESPECT TO CFTC AND FTC.

    Nothing in this Act or the amendments made by this Act shall be 
construed to limit the application of the Commodity Exchange Act or the 
Federal Trade Commission Act.

SEC. 7. SATISFACTORY CONTROL LOCATION REQUIREMENT.

    Not later than 90 days after the date of the enactment of this Act, 
the Commission shall amend section 240.15c3-3 of title 17, Code of 
Federal Regulations, to provide that the requirement for a satisfactory 
control location for any digital unit (as defined under section 2(a) of 
the Securities Act of 1933) that is a security is fulfilled by 
protecting the digital unit using public key cryptography and by 
following commercially reasonable cybersecurity practices to maintain 
the privacy and accessibility of sufficient private key material to 
solely be able to sign on behalf of such digital unit.

SEC. 8. INDIVIDUAL RETIREMENT ACCOUNT INVESTMENTS IN CERTAIN VIRTUAL 
              CURRENCIES NOT TREATED AS DISTRIBUTIONS.

    (a) In General.--Section 408(m) of the Internal Revenue Code of 
1986 is amended--
            (1) in paragraph (3)--
                    (A) in the heading of the paragraph, by striking 
                ``and bullion'' and inserting ``, bullion, and virtual 
                currencies'';
                    (B) in subparagraph (A)(iv), by striking ``or'';
                    (C) in subparagraph (B), by inserting ``or'' after 
                ``futures contract,'';
                    (D) by inserting after subparagraph (B) the 
                following:
                    ``(C) virtual currency.''; and
                    (E) by striking ``if such bullion'' and inserting 
                ``This paragraph shall only apply to bullion which''; 
                and
            (2) by adding at the end the following:
            ``(4) Virtual currency defined.--For purposes of this 
        subsection, the term `virtual currency' means a digital 
        representation of value that is used as a medium of exchange 
        and is not currency (within the meaning of section 988).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges on or after January 1, 2021.

SEC. 9. CERTAIN EXCHANGES OF VIRTUAL CURRENCY TREATED AS NON-TAXABLE 
              EXCHANGES.

    (a) In General.--Section 1031 of the Internal Revenue Code of 1986 
is amended--
            (1) in the heading, by striking ``real property'' and 
        inserting ``certain property''; and
            (2) in subsection (a), by adding at the end the following 
        new paragraph:
            ``(4) Exchange of virtual currency.--An exchange of virtual 
        currency (as defined under section 408(m)) shall be treated as 
        if such exchange were an exchange of real property under this 
        section.''.
    (b) Clerical Amendment.--The table of parts for part III of 
subchapter O of chapter 1 of such Code is amended by striking 
``Exchange of real property'' and inserting ``Exchange of certain 
property''.
    (c) Effective Date.--The amendments made by this section shall 
apply to exchanges made on or after January 1, 2021.

SEC. 10. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CURRENCY.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
139H the following new section:

``SEC. 139I. GAIN FROM SALE OR EXCHANGE OF VIRTUAL CURRENCY.

    ``(a) In General.--Gross income shall not include gain from the 
sale or exchange of virtual currency (as defined under section 408(m)) 
for other than cash or cash equivalents.
    ``(b) Limitation.--
            ``(1) In general.--The amount of gain excluded from gross 
        income under subsection (a) with respect to a sale or exchange 
        of virtual currency shall not exceed $600.
            ``(2) Aggregation rule.--For purposes of this subsection, 
        all sales or exchanges which are part of the same transaction 
        (or a series of related transactions) shall be treated as one 
        sale or exchange.
    ``(c) Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2022, the dollar amount in 
subsection (b) shall be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `calendar year 2022' for 
        `calendar year 2016' in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded 
to the nearest multiple of $50.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
the item relating to section 139H the following new item:

``Sec. 139I. Gain from sale or exchange of virtual currency.''.
    (c) Reporting of Gains or Losses.--The Secretary of the Treasury 
shall issue regulations providing for information returns on 
transactions in virtual currency (as defined under section 408(m) of 
the Internal Revenue Code of 1986) for which gain or loss is 
recognized.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to transactions entered into on or after January 1, 
2021.
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