In Revenue Ruling 2023-14, issued July 31, 2023, the IRS ruled that a cash-method taxpayer that receives additional units of cryptocurrency as rewards for validating transactions on a proof-of-stake blockchain must recognize the fair market value of the validation rewards as income in the taxable year in which the taxpayer gains dominion and control over the validation rewards. This is broadly consistent with the IRS views previously expressed on the treatment of mining income. In…
Almost five years ago, we reported on the SEC’s first-ever case against celebrities for touting ICOs. In 2022, Kim Kardashian paid $1.26 million in connection with her touting on social media a crypto asset security (she received about $250,000 for a post on Instagram). On August 4, 2023, in the SEC’s most recent touting case, singer Austin Mahone consented to a judgment under which he paid about $46,000 for illegal touting. The simple concept behind…
Quantstamp is a Blockchain security firm that raised funds through an initial coin offering (ICO). According to the SEC, in August 2017, Quantstamp released a White Paper with respect to its upcoming offering of a crypto asset called QSP, which described Quantstamp’s plans to develop a protocol on the Ethereum blockchain that would provide automated security audits of smart contracts (the “Protocol”). The White Paper also described Quantstamp’s plans to implement a governance system “after the…
On July 13, 2023, Judge Analisa Torres of the United States District Court or the Southern District of New York issued an Order on competing motions for summary judgment in the closely followed SEC v. Ripple Labs, Inc. litigation. As the first court decision to broadly address the question of whether a cryptocurrency itself is a security, as the SEC has maintained it is in most circumstances, the Order may have broad implications to the state of…
On July 11, 2023, the United States Senate solicited input from the public on the appropriate treatment of digital assets under US federal income tax law. Noting that uncertainty over the application of existing laws to transactions involving digital assets creates complex tax reporting issues for taxpayers, the Senate signaled that legislation may be required to provide adequate guidance to the industry and the public. Click here to access a full discussion of the matter.
In November 2022, U.S. District Judge Paul J. Barbadoro of the District of New Hampshire held that LBRY, Inc. had conducted unregistered offerings of securities in violation of § 5 of the Securities Act with respect to its offer of sale of its LBC token. That token was meant to be used by content creators and audience members on LBRY’s “content marketplace,” which billed itself as an alternative to YouTube. On July 11, 2023, the judge…
On July 11, 2023, the Unites States Attorney’s office for the Southern District of New York announced that it had arrested Shakeeb Ahmed and charged him with wire fraud and money laundering in connection with his attack on a decentralized cryptocurrency exchange (the “Crypto Exchange”). Although the indictment did not identify the exchange, based on the facts described in the indictment, it has been reported that the hack was against Crema Finance, a decentralized cryptocurrency platform…
About two years ago, we wrote a post about actions being taken by the U.S. Internal Revenue Service (“IRS”) in connection with its concern that cryptocurrency owners were underreporting or failing to report gains. One such action was the use of John Doe summonses. The IRS issues a John Doe summons when it wants to obtain information about a group of unidentified taxpayers where it suspects many are non-compliant. If successful, a John Doe summons…
On June 27, 2023, the Official Committee of Unsecured Creditors (the “Committee”) in the BlockFi Chapter 11 bankruptcy reorganization case filed an Objection to the company’s Plan and essentially requested that the company be liquidated. The Official Committee is made up largely of 600,000 individual customers of BlockFi. The Committee based its position on the contention that the “the ‘reorganization’ case is over.” As it states, the Debtors’ investment bankers ran an extensive M&A process,…
BlockFi is a wealth management and trading firm for cryptocurrency holders that first commenced operations in 2017. In July 2021, we wrote about BlockFi’s bumpy road to going public, even though its valuation had just hit $5 billion. In February 2022, the SEC announced that BlockFi had agreed to pay $100 million in fines ($50 million to the SEC and $50 million to 32 states) to settle charges that it failed to register the offers…