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Showing posts from March, 2019

Staking Income

Disclaimer

I've been asked several times recently about the appropriate tax treatment of Staking Income.  Staking Income arises from "staking" a validator with tokens to allow it to validate more transactions, for which the validator pays the party providing the tokens a fee.

As discussed below, I think there are enough issues here that funds should consider a small restructure to eliminate the risk.

NATURE OF THE ISSUE:

Usually the question is posed by a fund that has foreign and/or tax exempt investors who wants to be sure that receiving "Staking Income" does not result in those investors being allocated "Effectively Connected Income" ("ECI") or "Unrelated Business Taxable Income" ("UBTI").  If the validator is not operating in the US, the foreign investors don't have an issue, but the tax exempt ones are still at risk if the income is "business income".

The problem, as with most crypto questions is that t…