The Federal Election Commission made a first-of-its-kind decision Thursday, issuing guidance to allow political action committees to accept Bitcoin donations from their supporters.
The FEC voted 6-0 to allow Make Your Laws PAC to accept up to $100 worth of bitcoin per contributor each election, but must “sell the bitcoins it purchases and deposit the proceeds into its campaign depository before spending those funds,” the panel said in its advisory opinion memo to the PAC. It also said that PACs “should value that contribution based on the market value of bitcoins at the time the contribution is received,” and that “earnings (or losses) realized upon the sale of any bitcoins ... must be reported like other investment earnings or losses."
The panel agreed with the Make Your Laws (MYL) proposal, allowing it “to accept bitcoins only through an online form on which each bitcoin contributor, regardless of the proposed contribution amount, will have to provide his or her name, physical address, occupation, and employer," it wrote. "Additionally, MYL intends to require each bitcoin contributor to affirm that he or she owns the bitcoins (individually, or jointly with a spouse) that he or she will contribute. MYL also intends to require each bitcoin contributor to affirm that he or she is not a foreign national.”
Once MYL has confirmed the identity and ownership information, the PAC will send the donor a one-time “linked address” to send the Bitcoin. It will then purchase the bitcoin on open, high-volume exchanges, then sell them for dollars before being deposited into its campaign account within 10 days or being used. The decision isn’t allowing committees to make purchases with Bitcoin. “But it isn't prohibiting them from doing so, either,” Dave Levinthal at Public Integrity writes in analyzing the guidance.
Levinthal notes that the FEC’s ruling was “relatively narrow” and that the decision “left open as many questions as it answered about the digital currency.” This is in large part, he says, because the guidance only answers MYL’s specific proposal. And that PAC only requested to accept $100 worth of the digital currency.
So it may not be so simple to just donate bitcoin to a PAC as the FEC has made it seem, due to the way the Internal Revenue Service views the cryptocurrency. The tax agency ruled in March that bitcoin is considered an asset or a property - not currency - for tax purposes.
“That means anytime you use it, you must account for it in the same way you would the sale of a stock for capital gains purposes. Not doing so is illegal and punishable as tax avoidance,” Boom Bust producer Edward Harrison said in an e-mail. “Using bitcoin as payment for PACs, therefore makes PACs subject to IRS search warrants to catch individuals avoiding taxes illegally. And given what we have seen in Switzerland in cracking down on tax avoidance, we should fully expect the IRS to use this to justify PAC search warrants, whether politically motivated or not.”
The FEC sidestepped the issue. “The Commission expresses no opinion regarding the application of federal securities law, tax law, or other law outside the Commission’s jurisdiction,” the election commission panel stressed in its advisory opinion.
But FEC Chairman Lee Goodman believes the commission’s guidance is in agreement with the IRS. “The Federal Election Commission opined today that bitcoins will be regulated like in-kind contributions,” he said, according to The Hill. “So the commission effectively took the same position that the IRS has taken, that bitcoins are in kind property; they are not U.S. currency.”
And the FEC guidance comes one day after the Securities and Exchange Commission issued a warning to bitcoin investors “to make investors aware about the potential risks of investments involving Bitcoin and other forms of virtual currency.” Also on Wednesday, RT reported that the US Department of Defense is conducting a counterterrorism program investigation of virtual currencies like Bitcoin.
Despite the potential legal ramifications from the Pentagon, SEC or the IRS, politicians are already jumping on the Bitcoin wagon. Rep. Jared Polis (D-Co.) was the first pol out of the gate, less than six hours after the FEC decision.
— Jared Polis (@jaredpolis) May 8, 2014