Digital Assets Taxation

Gray Reed has recently filed two significant amicus briefs challenging the Securities and Exchange Commission’s (SEC) controversial “regulation by enforcement” approach, particularly in emerging technology sectors.

The first brief was filed on behalf of the Texas Blockchain Council and the AI Innovation Association in the ongoing SEC “gag order” case before the 9th Circuit Court

Co-author Lee Bratcher, Founder and President of the Texas Blockchain Council

Cryptocurrency has grown from a niche digital curiosity to a mainstream financial instrument. With the surge in popularity and the increase in transactions involving cryptocurrencies, the IRS has intensified its focus on ensuring proper tax reporting. They have also over-corrected with guidance and rules

Intellectual property (“IP”) is typically monetized either by sale or (royalty generating) license agreements. The Code[1] often allows sales to be taxed at preferential capital gains rates[2] while simple royalties are ordinary income.[3] At present the maximum capital gain versus ordinary income rate differential for non-corporate taxpayers – without more[4]

In addition to being developed in-house, intellectual property (“IP”) can obviously be acquired from third parties. IP acquisitions may be more germane now than in the recent past as developers race to create and monetize artificial intelligence (“AI”) tools.  But, while AI platforms might be the shiniest and most interesting objects in the current IP

As the price of bitcoin rises, it is dominating the discussion regarding the future of cryptocurrencies, other digital assets and blockchain technology. Although the bitcoin price is a good thing, there is much more to be excited about regarding blockchain technology and digital assets in 2024.

Gray Reed Partner Joshua Smeltzer, who co-leads the

On June 30, 2023 the District Court in the Northern District of California granted a petition to enforce the cryptocurrency exchange Kraken to release customer information.  Specifically, Kraken was ordered to produce the name, date of birth, taxpayer identification number, physical address, telephone number, and email addresses for customers having at least $20,000 of transactions

The Internal Revenue Service’s proposed classification of non-fungible tokens (NFTs) as digital assets has raised concerns in the blockchain industry and among stakeholders. While these tokens are unique, the IRS’s broad categorization of NFTs as securities has led to calls for clearer regulations, especially as NFTs can also be collectibles. Industry experts seek clarification on

The U.S. Treasury Department faces a complex task in enforcing its proposed digital asset reporting rules on foreign trading platforms. The regulations, introduced in late August, primarily address domestic transactions, leaving potential difficulties in enforcing reporting requirements on foreign digital asset brokers, especially those operating cryptocurrency trading platforms.

One potential avenue for the Treasury to

On September 8, 2023, the IRS announced a multitude of compliance initiatives aimed at high-income taxpayers, partnerships, digital assets, FBARs and labor brokers.  According to the announcement, the IRS has finalized its “top-to-bottom review” of current enforcement efforts and intends to zero in on these matters in the near future.  As expected, the impetus for change—according to the announcement—was Congress’s decision to provide the IRS with additional funding through its passage of the Inflation Reduction Act (IRA). 

Providers of digital asset services would be subjected to tax reporting regulations akin to those governing brokers of securities and analogous financial instruments, as outlined in the inaugural set of proposed regulations delineating protocols for assets like cryptocurrency and nonfungible tokens. These guidelines, disseminated by the Internal Revenue Service on Friday, introduce the requirement for digital asset brokers to submit information returns and payee statements relating to asset sales conducted on behalf of customers during specific transactions, in accordance with Internal Revenue Code Section 6045.

Additionally, the comprehensive 282-page proposal recommended that brokers incorporate gain or loss details and basis information for sales occurring on or after January 1, 2026, under specific circumstances. This provision is designed to equip customers with the requisite information for compiling their tax returns.

The effective date of these regulations is slated for transactions from the preceding year, with enforcement beginning in 2026.

Law360 covered the topic in an article on August 25, 2023 where Gray Reed Partner Joshua Smeltzer was one of the experts interviewed. Board Certified in Tax Law by the Texas Board of Legal Specialization, Joshua uses his experience as a former litigator for the U.S. Department of Justice to defend clients in tax audits, tax appeals, and litigation in Federal District Court, U.S. Tax Court, the U.S. Court of Federal Claims, and tax issues in U.S. Bankruptcy Court.