From: Hal <74076.1041@CompuServe.COM>
Date: Wed, 20 Jan 93 00:04:41 PST
To: CYPHERPUNKS <CYPHERPUNKS@toad.com>
Subject: Digital cash legality...
Message-ID: <930120075819_74076.1041_DHJ46-2@CompuServe.COM>
MIME-Version: 1.0
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Continuing my research on the legality of digital cash...

I found something interesting.  As I posted before, one of the obstacles
to free printing of private bank notes is a 10% per year tax on the
circulation of bank notes from state-chartered banks.  This law took
effect on July 1, 1866.  According to "Monetary Decisions of the Supreme
Court", by Dunne, "The tax has become a permanent fixture in federal
law.  Its latest form is sections 4881-4886 of the Internal Revenue Code
of 1954."

That book is a little old, so I went tonight to look up these sections
of the 1992 IRC.  They don't exist.  There is a note saying:

"Prior sections 4881 to 4886, Act Aug. 16, 1954, c. 736, 68A Stat. 587-589,
imposed a tax on the circulation of banks.

"Repeal effective on the first day of the first month which begins more
than 90 days after Oct. 4, 1976."

So, it appears that these provisions have been repealed!  It's possible
that the same requirement has been re-enacted in some other form, but I
looked around a bit in the index and contents and although there are many
unusual taxes I could not find anything similar to this.

-----

I also got an email suggestion to look up the codes related to barter
exchanges.  It does appear that many of these suggestions for digital
cash could be construed to be covered by such laws.  Here is an excerpt
from the Code of Federal Regulations, 1.6045-1(f5):

"(i) A credit is an amount on the books of the barter exchange that is
transferable from one member or client of the barter exchange to another
such member or client, or to the barter exchange, in payment for property
or services;

"(ii) Scrip is a token issued by the barter exchange that is transferable
from one member or client of the barter exchange to another such member
or client, or to the barter exchange, in payment for property or services;
and

"(iii) Property does not include a credit or scrip."

The "credit" provision seems to cover "digital checking accounts", and
the "scrip" definition seems to cover digital cash.  A barter exchange
itself is defined in 1.6045-1(a):

"(4) The term 'barter exchange' means any person with members or clients
that contract either with each other or with such person to trade or
barter property or services either directly or through such person.
The term does not include arrangements that provide solely for the
informal exchange of similar services on a noncommercial basis."

Even though the crypto banker/money-changer may not be trading property
or services (just exchanging scrip for dollars), the larger system
composed of the banker and the users of digital cash (who presumably
are buying and selling property and services from each other using the
cash/scrip) seems to match this definition pretty closely.

I noticed the exception for noncommercial use, but the only example
they give is for people in a carpool, who exchange the service of driving
each other to work.  It's not clear whether a digital cash money exchange,
even if not operated for profit, would qualify.

If you are a barter exchange, and there are more than 100 transactions
occuring per year, you have to keep the taxpayer ID number of all the
customers on file, and send them all a form 1099 describing their
transactions and the market value of the transfers, as well sending
information directly to the IRS.  This doesn't sound like it will lead to
much anonymity, crypto or otherwise.

Hal
74076.1041@compuserve.com