7 Things to Know from the New Lummis-Gillibrand Cryptocurrency Bill

June 8, 2022

A new bipartisan cryptocurrency bill from Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) creates an ambitious regulatory framework for digital assets. Known as the Responsible Financial Innovation Act, it aims to clarify several legal issues, protect investors, provide more favorable tax treatment, and encourage continued growth of the burgeoning crypto industry. (See the full text here.)

Here are 7 of the most important proposals to know about in the Responsible Financial Innovation Act.

Keep in mind: The bipartisan cryptocurrency bill will likely undergo several changes as it makes its way through Congress. It could take years before any provisions in this bill are passed or enacted, if ever.

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Easy Guide to Crypto Taxes

1. No Tax for Capital Gains Under $200 (in Some Transactions)

Under the Responsible Financial Innovation Act, the capital gains from some cryptocurrency transactions would be exempt from tax. This would apply to personal transactions that:

  • Are purchases of goods and services; cashing out, swapping, or converting crypto would not qualify for the exemption
  • Result in a capital gain of less than $200
  • Are not business-related or income-producing

This $200 limit applies to each disposition of crypto. But if you need to complete multiple steps as part of the same transaction, it will be treated as one single disposition.

2. Mining and Staking Rewards Not Taxable Until Sold

Currently, cryptocurrency earned by mining or staking is taxed as ordinary income at the time of receipt. The new cryptocurrency bill seeks to change that, claiming that mining or staking rewards will not be taxable until the crypto is sold or disposed of (this includes converting one type of crypto to another).

This would be a big win for cryptocurrency miners and node operators. A couple in Tennessee recently sued the IRS over this tax issue in a well-publicized IRS staking case.

3. Crypto Lending Generally Not Taxable

The Responsible Financial Innovation Act aims to solidify favorable tax treatment for cryptocurrency lending. Already, loans (including crypto loans) are not considered taxable income.

However, certain scenarios create gray areas in the law. For example, on the popular platform Compound, you exchange your collateral, ETH, for a protocol token called cETH. When you’re ready to exit, you swap the cETH for more ETH than you initially put in.

Taking a conservative tax position, this could be considered a taxable event that triggers a capital gain. But under the new bill, the simple act of swapping your crypto collateral for a placeholder token would be non-taxable. (Note: There could be an exception if there’s a market for your placeholder token/protocol token.)

Importantly, this framework opens up financial institutions to deal with cryptocurrency as collateral—something that’s currently not accepted by most traditional banks.

4. Limiting the Scope of Reporting to the IRS

In 2021, the Infrastructure Investment and Jobs Act passed with a controversial crypto provision included. It requires cryptocurrency exchanges and other “brokers” of digital assets to report information about customers’ trades to the IRS, as traditional stockbrokers already do.

The law’s definition of “broker” was criticized for being overly broad and creating reporting requirements for some people who couldn’t possibly fulfill them.

The Lummis-Gillibrand bill seeks to change that. It defines a broker as someone who “stands ready in the ordinary course of a trade or business to affect sales of digital assets at the direction of their customers.” It would also delay reporting requirements to take effect in 2025 instead of 2023.

5. Handing the Reins to the Commodity Futures Trading Commission (CFTC)

The bipartisan cryptocurrency bill defines most cryptocurrencies as commodities, which would put them under the regulatory control of the Commodity Futures Trading Commission (CFTC).

Currently, the Securities Exchange Commission (SEC) is crypto’s #1 watchdog, since many crypto assets are considered securities. The SEC has been cracking down hard on unregistered securities offerings in the crypto industry.

This mainly affects token creators and brokers, who currently must comply with SEC law—an expensive and complex task filled with extensive reporting requirements. Under the new bill, they would have relatively minor SEC reporting to worry about, and would be subject to the more lenient regulations of the CFTC.

The Lummis-Gillibrand bill says a crypto commodity can only be considered a security if it offers the same types of perks as investing in a corporation, like:

  • Dividends
  • Liquidation rights
  • A financial interest in the issuer

6. Possible Tax Changes if Crypto Is a Commodity

If most cryptocurrencies are considered commodities, that could have a major impact on how they’re taxed—if the IRS agrees.

Even if the Responsible Financial Innovation Act passes and defines cryptocurrencies as commodities, the IRS may not follow that classification. But if they do, crypto taxation would face 2 big changes.


Currently, every single crypto transaction must be listed on Form 8949, with a gain or loss calculated for each one. You have to know the cost basis and holding period for each token or fraction of a token, which is why crypto tax reporting is so difficult.

However, commodities use a mark-to-market method for end of year accounting. Essentially, all assets held at the end of the year will be considered sold as of the last day of the year, and all assets going into the following year will have a cost basis based on fair market value.

With mark-to-market, all unrealized gains or losses as of year-end will be added into the calculation for income tax purposes.

60/40 Tax Rule

Capital gains from selling or trading commodities follow a 60/40 rule: 60% of profit is taxed as long-term capital gains (with a maximum tax rate of 15%), while 40% is taxed as short-term capital gains (taxed at your ordinary income tax rate).

Generally, this can be favorable for frequent traders, but not so much for HODLers who have been using nontaxable methods such as loans or staking to maintain their holding periods.

7. Legitimizing DAOs

Although some states, including Wyoming and Tennessee, allow a business to register as a Decentralized Autonomous Organization (DAO), the lack of federal tax recognition still presents a hurdle.

The new crypto bill defines DAOs as business entities for tax purposes. It would still require a DAO to be registered as an entity under state jurisdiction—in most states, that means it would have to be an LLC, C-corporation, or similar.

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