Blockchain technology and cryptocurrency pose several challenges to the application of existing tax law. Although IRS Notice 2014-21 provides a useful baseline rule that taxpayers must apply general tax principles applicable to property transactions to transactions involving cryptocurrency, it suffers from having been issued too early in the evolution of blockchain technology.
The general rule does not distinguish between asset-backed, intrinsic, utility, or equity cryptocurrency. This poses intricate tax issues when the general rule is applied to several different types of cryptocurrency transactions.
Each transaction involving cryptocurrency poses complex structuring issues with no cookie-cutter solutions. For example, a token issuance structure that works for one entity may not work for another. Besides the analysis of an offshore versus onshore structure, it also becomes important to select a proper jurisdiction and entity type (partnership, foundation, corporation, trust, etc.) and determine the tax implications of all the anticipated intercompany transactions, IP development activities, and the transfer of IP.
Further, a tax-free transaction for an issuer, whether in any token issuance, hard fork, soft fork, or airdrop, may be a taxable event for a purchaser (or vice versa), which must be specifically analyzed before structuring a blockchain transaction.
The presentation will touch on the latest issues involving decentralized finance, staking, etc., and will include an overview of current and potential future cryptocurrency reporting requirements.
What You'll Learn:High-Level Understanding of Blockchain Technology and Types of Tokens/CryptocurrenciesTax Ramifications of the General Rule Provided by the IRS Under Notice 2014-21Understanding the U.S. Federal Tax Implications of Initial Coin Offering/First Token Sales- Classification of Tokens as Equity vs. Debt for Tax Purposes
- Characterization of Income (Sale, License, or Service)
- Determination Whether the Issuer Should Be a U.S. Issuer or a Foreign Issuer, and the Tax Implications of Using Domestic Entity vs. Foreign Entity
- Timing of Income Inclusion for Issuers and Purchasers
Understanding the Tax Implications for Token Purchasers and TradersTax Implications of Decentralized FinanceTax Implications on Transfer of Intellectual Property in a Blockchain Project U.S. Tax Issues Involving U.S. and Foreign Traders in CryptocurrencyUnderstanding the Reporting Requirements Under the Infrastructure Investment and Jobs ActU.S. Federal Tax Implications of Hard Forks, Soft Forks, and Airdrops
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