This section of our website¹ spells out what the federal government can do to help citizens help themselves address many of the economic, environmental and social issues facing our society. It explains how the government can do so — by getting out of the way of citizen-led action and letting those citizens issue their own money, without triggering taxation.

That change in taxation can be achieved either through legislation by Congress, the subject of this page, or via a Presidential Executive Order found here.²

As a result, we are calling on Congress to attach a small piece of legislation as a rider to just about any bill that we call The LIFT Act (Let Individual communities Finance Themselves), that carries out that objective. Below is the background to this proposed legislation, followed by the text of that legislation, which can also be downloaded via this pdf file.³

Background

The United States was built on a tradition of individualism, independence, and mutual self-help. Citizens are encouraged to come to each other’s aid and address shared problems and, if possible, doing so without relying on the government.

Many of today’s challenges can be traced to growing income and wealth disparity. Lack of money is at the root of many seemingly unsolvable societal problems. Communities have looked to the federal government to address that lack, on the assumption that all money comes from the government. But the government cannot fund everything.

Fortunately, the reality is that the government is not the only entity allowed to issue money. Private citizens, communities and businesses can too, and have done so for hundreds of years, including in the United States where many entities have issued private money since our founding days.

As the Federal Reserve Bank of Cleveland explains, “The founding fathers made it clear that the power to create money would not be taken lightly. Their experiences with money and inflation during the Revolutionary War made them wary of paper money and conscious of the power wielded by those authorized to create it. They gave Congress the right to issue money and forbade the states from doing so. But the federal government is not the only entity that has, in practice, issued money. Private citizens and private companies have, too. . .”¹

And therein lies a key to helping address the scarcity of money in the productive economy. The government calls money issued by private parties “virtual currencies.” The citizens of the United States can issue their own money as a virtual currency and use it to boost their local economies.

Historically, all such currencies have been local in nature, intended to address the needs of a specific community or geographic area. Thus, they are often called local or community currencies, and are very relevant to this Legislation.

However, beginning in 2009, a new form of virtual currency began circulating called cryptocurrency.² Cryptocurrencies were designed to be global and not local in nature, and some have grown to rival many national currencies, well beyond the intended beneficiaries and scale of community currencies. They are specifically excluded from this Legislation.

Cryptocurrencies have created problems for national governments, which is why on March 9^th, 2022 President Biden issued: Executive Order on Ensuring Responsible Development of Digital Assets³ (hereinafter “Cryptocurrency Executive Order” or “EO”).

However, that EO can cause unintended and even irreparable harm to local community currency efforts. Therefore, this Legislation hereby exempts such currencies from all regulatory burdens that might be imposed on them by the Cryptocurrency Executive Order, or any other orders issued since then, subject to the following conditions.

1. Such currencies are geographically limited for usage primarily within one U.S. state or U.S. territory, and
2. Are issued by a non-profit entity organized under IRS Code Sections 501(c)(3) or 501(c)(4), and
3. The currencies so issued are for regional economic development purposes only, intended to provide access to capital (currently unavailable) for residents of a community (i.e., entrepreneurs, small businesses and organizations) and to benefit the public as a whole, and are not speculative in nature, thus excluding cryptocurrencies.

Exempting community currencies from the regulatory burdens of the Cryptocurrency Executive Order will help them to aid local economies, something the cryptocurrency world is not focused on. However, their ability to provide aid to local communities is also hampered by other specific federal laws and regulations. This Legislation is also intended to address those laws and regulations, the most significant of which relates to taxation.

Currently the Internal Revenue Service treats all transactions in virtual currencies as though they are conducted in U.S. dollars and requires that taxpayers pay the IRS any tax due in dollars, rather than the virtual currency.

So, even if a community wanted to issue its own money to fund things like job creation programs and other expenditures to benefit the community, it would effectively be blocked from doing so because of a lack of dollars to pay any taxes resulting from those economic activities. Thus, even though citizens can issue their own money legally, practically they cannot.

It does not have to be that way. The Internal Revenue Service Advisory Council⁴ (IRSAC), a long-standing IRS advisory group created by Congress to analyze tax issues and make recommendations to the IRS, issued a report⁵ in 2018 making eight recommendations concerning virtual currencies. The IRS adopted the first seven of those recommendations but ignored the eighth which stated “Accept payment of tax liabilities with virtual currency. . .”

And while that represents a potential solution, it carries with it the complication of allowing all sorts of virtual currencies to be used to pay taxes, some of which would be beneficial to society and others that would only benefit certain taxpayers. That would detract from the chief objective of allowing communities to address their own problems by issuing their own money and applying that money to their local needs.

Fortunately, Congress has an alternative that avoids those complications and allows citizens to issue money for their local benefit. IRS Code Sections 501(c)(3) and 501(c)(4) provide for certain types of organizations whose fundamental purpose is to provide a public benefit, and prohibits actions that only benefit individuals. As such, their functions are considered exempt activities not subject to taxation.

This Legislation will direct the Department of the Treasury and its agency, the Internal Revenue Service, to treat currencies issued by a 501(c)(3) or 501(c)(4) organization for regional economic development purposes as an exempt activity under IRS rules governing exempt activities, whereby all transactions conducted in said local virtual currencies shall be exempt from federal taxation, which in turn will encourage all parties to continue to exchange those virtual currencies among themselves, to the benefit of the local economy.

That will guarantee that society at large will benefit from this Legislation and not individuals. To protect this exemption from fraud and abuse, those organizations will be required to pre-qualify their currency with IRS under this Legislation, along with the potential of loss of their tax-exempt status for misusing this exemption.

To avoid other potential complications, other federal agencies will be directed to take specific actions or avoid certain actions.

The first of these is the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury. Its oversight of Money Services Businesses (MSBs) is intended to prevent money laundering. That role is addressed in the above Cryptocurrency Executive Order.

However, that objective is a mismatch with community currencies. Community-oriented virtual currencies are a dead end for money launderers, primarily since they can only be moved or used locally, especially when limited to the conditions specified above. Forcing non-profit organizations to register with FinCEN and deal with that regulatory overhead is a waste of time and resources for all parties.

Therefore, FinCEN shall be directed to exempt organizations that issue virtual currencies under this Legislation from being classified as MSBs. Any non-profit organization formed under § 501(c)(3) and § 501(c)(4), that issues a complementary currency shall be exempt from having to register with FinCEN as a money services business.

The second agency is the U.S. Securities and Exchange Commission (SEC), an independent agency of the United States federal government. The SEC considers many virtual currencies, especially cryptocurrencies, as fitting the definition of a security,⁶ and thus subject to its jurisdiction and oversight. Such oversight would translate into potentially costly and time-consuming activities on the part of the non-profit to register those securities with the SEC or prove that they are considered exempt.⁷

Therefore, the SEC is hereby ordered to exclude any virtual currency issued by entities formed under § 501(c)(3) and § 501(c)(4) from being considered securities by the Securities and Exchange Commission, whether or not said currencies are tied to, or backed by, any form of assets.

And while our overall goal is to maximize the circulation of those virtual currencies in a local economy, there will be times when the holder of said currencies might want to or need to convert some of that currency into US dollars.  In the interest of providing that liquidity for holders of those local virtual currencies and in particular convertibility to U.S. dollars, Congress would like to enlist all federally and state-chartered banks and credit unions to serve as clearing houses (i.e., a currency exchange)⁸ for holders of those currencies.

However, should a holder of a virtual currency elect to convert some or all their currencies into dollars, then that tax payer would be able to pay the IRS any tax due in dollars. In which case the receipt of a certain amount of virtual currency will not longer be considered a tax-exempt transaction. The amount so considered would be correspond to the amount of the virtual currency exchanged for dollars and the amount of dollars received.

Then a determination needs to be made as to the type of transaction that yielded the receipt of the virtual currency by the tax payer, and whether the amount of dollars received for that type of transaction would trigger a taxable event.

For example, if the virtual currency was received in exchange for labor on the part of the virtual currency holder, then the test for income tax would be applied and that taxpayer would need to report that income amount on their tax return as miscellaneous income. If the receipt of the virtual currency was for the sale of goods or property; then business income or capital gains tests would apply and the taxpayer would need to report accordingly.

Now, what about the agencies that oversee the banks and credit unions that will serve as clearing houses? Certain federal agencies have oversight over those banks and credit unions and therefore need to support the above clearing house objective. Therefore, all federal agencies that have oversight of state and federally chartered banks and credit unions shall treat any virtual currencies issued by non-profit organizations under U.S. Code Title 26, § 501(c)(3) and § 501(c)(4), and held by a state or federally chartered bank or credit union, as equal to U.S. dollars for purposes of determining such things as, but not limited to: reserve requirements, insurance payments, balance sheet evaluations, etc. The value of said currencies shall be the dollar equivalent established by the issuing non-profit organization when they issue those currencies. Thus, if a non-profit sells their currency on par with the US dollar (i.e., $1 equal to one unit of that currency), then those agencies shall treat the units of those issued currencies as equal to a dollar.

In the case of banks, the Federal Deposit Insurance Corporation (FDIC), an independent US government corporation, shall accept such virtual currencies for partial or full payment of required insurance payments due from that bank as though said payment were in U.S. dollars.

In the case of credit unions, the National Credit Union Administration, and its National Credit Union Share Insurance Fund (NCUSIF), an independent US government corporation, shall accept such virtual currencies for partial or full payment of required insurance payments due from that credit union as though said payment were in U.S. dollars.

On December 23, 1913, Congress established the Federal Reserve⁹ (“the Fed”) with the enactment of the Federal Reserve Act,¹⁰ and therefore has jurisdiction over the Fed. To provide the above described banks and credit unions with liquidity in those currencies, the Fed shall be directed as follows:

Should any state or federally chartered bank or credit union wish to exchange any virtual currency held by said bank or credit union and issued by a non-profit organization under U.S. Code Title 26, § 501(c)(3) and § 501(c)(4), for U.S. dollars from the Fed, the Fed shall purchase said currency from the requesting bank or credit union, in a manner like the purchases of various financial instruments that the Fed makes from banks. The value of said currencies shall be the dollar equivalent established by the issuing non-profit organization when they issue those currencies.

1.      https://www.clevelandfed.org/publications/economic-commentary/2007/ec-20070101-private-money-in-our-past-present-and-future

2.      https://en.wikipedia.org/wiki/Cryptocurrency

3.      https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/ 

4.      https://www.irs.gov/tax-professionals/internal-revenue-service-advisory-council-irsac

5.      https://www.irs.gov/pub/irs-prior/p5316–2018.pdf

6.      https://www.seclaw.com/what-is-a-security/

7.      https://www.sec.gov/smallbusiness/exemptofferings

8.      https://www.investopedia.com/terms/c/currency-exchange.asp

9.      https://en.wikipedia.org/wiki/Federal_Reserve

10.  https://en.wikipedia.org/wiki/Federal_Reserve_Act