Tax and Regulations Perspectives From Goodwin

Tax and Regulations Perspectives From Goodwin

Strategic Coin regularly provides insights about how cryptocurrency and tokens are affected by regulation and taxes. This article offers three videos in which Goodwin Proctor LLP helps navigate the complex regulatory environment, legal issues, tax implications, and compliance challenges. The first two videos are of theCUBE‘s John Furrier interviewing Goodwin Proctor partners Kelsey Lemaster and Grant Fondo. The third video is of Michael Whalen, partner and co-lead of Goodwin’s FinTech practice, speaking at Strategic Coin’s inaugural summit in December 2017. As always, none of this content should be construed as legal or investment advice.  

Kelsey Lemaster is a tax partner at Goodwin and participates in an Ethereum Network Foundation advisory board that covers tax issues. He expressed concern that the Internal Revenue Service has not provided any significant cryptocurrency governance since 2014, when the IRS issued a notice on how cryptocurrencies such as bitcoin are taxed to individual investors.

Lemaster talked about the importance of tax advice for ICOs, including how to think about SAFT (Simple Agreement for Future Tokens) and the open transaction doctrine.

Both Kelsey Lemaster and Grant Fondo discussed the idea of locating a token sale overseas. Lemaster expressed concern about companies setting up foreign foundations in Switzerland as a way to hide their business. However, he did acknowledge that setting up an offshore subsidiary may have positive tax implications.

Fondo is seeing companies that want to be in the US move offshore. Yet, he also acknowledged that staying in the US simplifies things. In many situations he is recommending that a token structure itself as a security instead of as utility.

“Regulators aren’t trying to crush this industry”, according to Fondo. In fact, he has been surprised guidance — from federal regulators, but especially from states, this hasn’t dampened the market. In fact, he believes that when a government issues guidance, this both provides more market certainty as well as validation that cryptocurrency will be around for the long-terms.

Michael Whalen was introduced to bitcoin when it was at $4 because he was involved with the legal aspects of “payments.” He has been involved with over 50 token generation events and has read over 500 white papers. Whalen often gets asked whether particular token is a utility or a security. The question is relevant because a utility token is not regulated while a security is. Although there are legal tests and the SEC continues to elaborate on its position, Whalen focuses on another test — how the token is being presented to the market itself. If the marketing uses terms like “investment” or if the white paper focuses on how the token will increase in value, that’s a red flag for prospective utility tokens. Whalen recommends that a TGE’s first blog post should be about a specific use case. Utility tokens’ communication efforts should be aimed to prospective users rather than future token buyers.

A write-up of the Kelsey Lemaster interview was originally published on the Silicon Angle website.

Strategic Coin offers in-depth instructional and educational pieces covering crypto topics. We welcome contributions from experts that want to share their insights with  our community.


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