In a memorandum to all house members, government officers, and employees, the US House of Representatives Committee on Ethics has required government officials to disclose holdings of cryptocurrencies and digital assets as “other forms of securities.”
Primarily For Tax Purpose
The memorandum emphasized the Internal Revenue Service (IRS), the national tax agency, has acknowledged cryptocurrencies like bitcoin and Ethereum as properties, with the intent of taxing the sale of digital assets and income generated from investing in cryptocurrencies.
The Committee on Ethics also noted the disclosure of holdings by government officials is crucial to major US financial agencies like the U.S. Commodity Futures Trading Commission (CFTC) and US Securities and Exchange Commission (SEC) that have different jurisdictions over the cryptocurrency sector and regulatory frameworks pertaining to digital assets.
The Memorandum read:
“Many regulatory agencies have addressed aspects of cryptocurrencies that are within their jurisdiction, or indicated they are continuing to review them. For example, the U.S. Commodity Futures Trading Commission (CFTC) has determined it can regulate cryptocurrencies as commodities. The Securities and Exchange Commission (SEC) has indicated for certain purposes, cryptocurrencies may be regulated as securities, and it is continuing to review how existing securities laws and regulations apply to them. The Internal Revenue Service (IRS) has advised for federal tax purposes, it will treat cryptocurrencies as property.”
More importantly, the Committee on Ethics has stated the House of Representatives will consider initial coin offerings (ICOs) in the same manner as initial public offerings (IPOs), and any government official that participates in an ICO have to disclose their participation to the SEC.
But, the memorandum highly encouraged government officials to cooperate with the SEC prior to investing in an ICO to ensure the token generated during the token sale is not considered a security.
The SEC has disclosed it had cracked down on several ICOs categorized as unauthorized security distributors and it believes more ICOs in the near future will fail to remain compliant with US regulations.
“At this time, the SEC indicated it is continuing to review ICOs and to assess how existing securities laws and regulations apply to them. The SEC has halted an ICO it concluded failed to comply with those laws and regulations. Also, a company recently filed a securities’ registration for an upcoming IC0. At this time, it is unclear which ICOs, if any, may be considered “the subject of an initial public offering” for purposes of the IPO prohibition,” the Committee on Ethics said.
Symbolic Disclosure Order
The decision of Committee of Ethics to require every government official and employee to disclose their cryptocurrency and token holdings is a symbolic movement initiated to demonstrate to the public market that every investor in the US is encouraged to voluntarily disclose their holdings for tax purposes.
Previously, Coinbase admitted it had spent upwards to $1 million in a case against the IRS to protect millions of user accounts from being shared with the IRS. The national tax agency of the U.S. still actively investigating into local cryptocurrency investors that fail to file for taxes and other leading regions like Japan and South Korea have vowed to do the same in the short-term.
It can be difficult for cryptocurrency exchanges to protect investors that purposefully evade taxes by hiding their digital asset holdings. The recent order of the Committee of Ethics indirectly told investors in the public market that everyone within the US must disclose investments in the cryptocurrency market, regardless of the type of digital asset investors hold.