Highlights from the Lummis- Gillibrand Responsible Financial Innovation Act (Introduced)

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

On June 7, 2022, a bill was introduced in the U.S. Senate that would provide greater clarity regarding the taxation and regulation of digital assets. Here are some of highlights.


The bill would provide definitions in connection with digital assets that would be generally applicable in such areas of law as federal income tax, commodities regulation, and securities regulation. Terms that the bill would define would include the following:

Federal Income Tax

Taxation of Mining and Staking Activities

Under the bill, income relating to mining and staking activities would be deferred until the taxable year in which there was a disposition (i.e., sale or exchange) of the assets produced or received in connection with those activities.[5] Thus, the bill would effectively reverse the Internal Revenue Service’s (IRS’s) guidance in Notice 2014-16 that a taxpayer must include the fair market value of virtual currency received from mining activities in gross income on the date of receipt. For more information on the current IRS guidance, see our post Taxation of Crypto Mining.

Exclusion for Personal Transactions

The bill would exclude from gross income the first $200 (as adjusted for inflation) of gain or loss from the disposition of virtual currency in a personal transaction for the purchase of goods or services other than dispositions in which virtual currency is sold or exchanged for cash, cash equivalents, digital assets, or other securities or commodities.[6]  The IRS also would be required to issue regulations regarding information returns on virtual currency transactions.[7]

Effectively Connected Income

The bill would provide that the trading of digital assets for a taxpayer’s own account or through a resident broker, commission agent, custodian, digital asset agent would not constitute a trade or business for purposes of determining whether income is effectively connected with a trade or business in the United States.[8] Determining whether income is effectively connected with a trade or business in the United States is principally relevant for determining the federal income tax treatment relating to specific items of income of foreign persons.[9]

Decentralized Autonomous Organizations (DAOs)

The bill would define a “decentralized autonomous organization” as “an organization . . . which utilizes smart contracts . . .  to effectuate collective action for a business, commercial, charitable, or similar entity, . . .the governance of which is primarily on a distributed basis, and . . . which is properly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization, cooperative, foundation or any similar entity.”[10]  The bill would provide that the default classification of a DAO would be as a business entity which is not a disregarded entity and that mining and staking digital assets and raising funds for a charitable purpose would not be considered a business activity of a DAO for purposes of determining whether the DAO is a social club under section 501(c)(7) of the Internal Revenue Code.[11]

Commodities v. Securities

The bill would cause certain investment contracts under which an ancillary asset is provided by the issuer to be presumed to be a commodity subject to the Commodity Exchange Act rather than a security subject to the Securities Act of 1933 or the Securities Exchange Act of 1934.[12]

For these purposes, an “ancillary asset” would be defined as “an intangible, fungible asset that is offered, sold, or otherwise provided to a person in connection . . . an investment contract . . . .”[13] However, an ancillary asset would not include a debt or equity interest in a business entity, business rights with respect to that entity, an entitlement to an interest or dividend payment from that entity, a profit or revenue share in that entity derived solely from the entrepreneurial or managerial efforts of other, or any other financial interest in that entity.[14]

The bill would also expand the jurisdiction of the Commodity Futures Trading Commission to cover digital asset transactions other than those involving “digital collectibles and other unique digital assets.”[15] Additionally, the bill would require the registration and regulation of certain “digital asset exchanges.”[16]


The bill would allow a depositary institution to issue, redeem, and conduct all incidental activities relating to payment stablecoins, provided that the institution maintained high-quality liquid assets equal to at least 100 percent of the face amount of the payment stablecoins issued by the institution.[17]

Eligible “high-quality liquid assets” would mean 1) U.S. legal tender, 2) demand deposits at a depository institution, 3) balances held at a Federal Reserve bank, 4) foreign withdrawable deposits consistent with any foreign unit of account to which a payment stablecoin is pegged, 5) a security that is issued or unguaranteed by the Treasury Department with an original maturity date of not more than one year (or a reserve repurchase agreement relating to such a security), and 7) any other high-quality liquid asset that the appropriate Federal banking agency or State bank supervisor determines to be consistent with safe and sound banking practices.[18]

The depository institution would be required to publicly disclose a description of the assets backing the payment stablecoins.[19] A depository institution also would be required to obtain permission from the appropriate Federal banking agency or State bank supervisor before issuing the payment stablecoin.[20]


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[1] Lummis-Gillibrand Responsible Financial Innovation Act, S. 4356, 117th Cong. § 101 (2022) (hereinafter “RFIA”) (proposing 31 U.S.C. § 9801(2)). While the text of the bill has yet to be added to Congress’s website, a copy can be found here.

[2] Id. (proposing 31 U.S.C. § 9801(4)).

[3] Id. (proposing 31 U.S.C. § 9801(8)).

[4] Id. (proposing 31 U.S.C. § 9801(10)).

[5] RFIA, supra note 1, § 208 (adding 26 U.S.C. § 451(l)).

[6] Id. sec. 201(a) (proposing 26 U.S.C. § 139J).

[7] Id. sec. 201(c).

[8] Id. sec. 203(a) (amending 26 U.S.C. § 864(b)(2), which provides a safe harbor for certain securities and commodities trading activities in the United States by foreign persons).

[9] See 26 U.S.C. §§ 871, 881, 882.

[10] RFIA § 204(a) (adding 26 U.S.C. § 7701(a)(51)).

[11] Id. § 204(a).

[12] Id. § 301 (adding 15 U.S.C. § 41(b)(4)).

[13] Id. § 301 (adding 15 U.S.C. § 41(a)).

[14] Id.

[15] Id. §§ 401-403.

[16] Id. § 404 (adding 7 U.S.C.  5i). For these purposes, a “digital asset exchange” would mean “a trading facility that lists for trading at least 1 digital asset.” Id. § 401 (7 U.S.C. § 1a(15B).

[17] RFIA § 601 (adding 12 U.S.C. § 4810(a), (b)). A “depository institution” would be defined by reference to the section 19(b)(1) of the Federal Reserve Act (12 U.S.C. § 461(b)(1)). Id. (adding 12 U.S.C. § 4810(m)).  A “payment stablecoin” would mean a digital asset that is redeemable on demand on a one-to-to one basis for legal tender, issued by a business entity, accompanied by a statement from the issuer that the asset is redeemable, backed by one or more financial assets other than digital assets, and intended to be used as a medium of exchange.  See id. §§ 101(a) (adding 31 U.S.C. § 9801(5), defining “payment stablecoin), 601 (adding 12 U.S.C. § 4810(m)(2), defining “payment stablecoin” by reference to 31 U.S.C. § 9801).

[18] RFIA sec. 601 (adding 12 U.S.C. § 4810(b)).

[19] RFIA sec. 601 (adding 12 U.S.C. § 4801(c)).

[20] RFIA § 601.