Tuesday, Senator Cynthia Lummis (R-WY) and Senator Kirsten Gillibrand (D-NY) released a bill targeting the reform of digital assets called the “Responsible Financial Innovation Act” outlining guidance in the realm of Bitcoin and digital assets. The bill could make a few big changes for miners, including IRS guidance, mining taxation and the analysis of energy consumption.

Implementing effective IRS guidance

In section 206 of the bill, it could mean that if passed, any new rules cited in the bill regarding the IRS would come into effect as soon as next year.

The language here is general guidance for more clarification around Bitcoin and Digital Asset Mining. It would define digital asset mining and the tax treatment of mining  “No later than 1 year after the date of enactment.”

Digital asset mining and staking

“—In the case of a taxpayer who conducts digital asset mining or staking activities, the amount of income relating to such activities shall not be included in the gross income of the taxpayer until the taxable year of the disposition of the assets produced or received in connection with the mining or staking activities”

The bill would eliminate taxation on “digital asset” mining and staking until the “disposition” or sale of said asset. In other words, allowing you to hodl bitcoin after you mine it without taxation. Current guidance forces miners to pay taxes on mined Bitcoin immediately.

Many in the industry articulate the set up as “double taxation,” since miners are taxed when they mine and when they liquidate mined Bitcoin. However, the current tax code treats many assets in the same manner, such as being paid in stock options at a company.

Even still, Bitcoin miners are looking for different treatment based on the novelty of the asset. Right now when you purchase Bitcoin, you don't need to pay taxes on your purchased Bitcoin. When you are mining, you are essentially “purchasing” bitcoin from your electricity provider with one step removed. Equating it to the analogy of purchasing Bitcoin from your electricity provider, it would seem like a double standard in the industry. Section 208 could eliminate this double tax and allow miners to HODL Bitcoin without taxation.

Energy consumption

Section 806 of the bill would require an analysis of the energy and consumption of digital assets. The Energy Regulatory Commision would be responsible for conducting research on the different ways Bitcoin uses energy including renewable, wasted, and stranded energy.

The energy consumption debate has been strong with a wide variety of data and claims. This section could give well deserved research to what some people think is the worst aspect of Bitcoin. Requiring the ERC to conduct that same research could give a direct line of information to lawmakers and the public, and hopefully support industry research.

The Responsible Financial Innovation Act could mean a lot for an industry that seems to be shrouded in mystery. This bill could provide guidance and information for the IRS, tax payers and the public in general, bringing light to a misunderstood industry.

Photo by Maria Oswalt on Unsplash