U3 – Crypto Profits & Taxes – Part 1
Hey, everyone. This is the man known as Bill Smith. And I’m here with John Singleton.
This is part one, of crypto crypto, Profit and Taxes. This is for ultimate members, at Privacy, Fight Club, and we’re so excited that you’ve joined Privacy Fight Club. So, thanks, everybody for doing that. This site has just been open a few days, and we’ve had a wonderful response. So, thanks so much for joining. So, John?
Yes, here’s what we’re gonna do. You’re gonna give us a presentation talking a little bit. And by the way, there’s gonna be four parts on this. So, if you don’t get everything you need out of this broadcast, don’t worry. We’re gonna be doing a few more on this topic, and I’m sure a million more on on Kryptos in general, I mean, it just comes up constantly, but, this is part one. And so John’s gonna go over a few things and then if you’re watching on, well, you must be watching on the your ultimate dashboard.
Um, there’s a space there where we can take some questions in the live chat, so make sure to do that, and John will get to them after a little while, so feel free to put your questions in the live chat below. And We’ll get to in a little while. Alright, John, I’m gonna mute myself.
Go for it, OK. Thanks so much.
Thanks everybody, for joining.
We are going to talk about the Blockchain Tax Community Trust, that’s the name I created.
It’s a standard type of trust.
It’s an irrevocable business trust organization.
And I’ll explain about how all this works together in just a few minutes, but I want to explain that we’re starting this with a couple of presumptions.
The presumption is that the United States is a country, and US, we’re, we’re presuming that people listening primarily are US citizens.
However, these principles do apply. in other other countries. They’re very similar. Even the tax system is very similar, and we’ll get into that.
This is a big subject, and let’s presume that everything that moves this time as a taxpayer, because that’s what the system does, it just looks at everything as I think that those taxes.
So with all these presumptions, let’s talk about the purpose of this trust.
This trust, is written to describe a relationship that already exists. It exists with the account holder at a cryptographic currency exchange, like Coinbase.
Um, the person or the individual whomever it doesn’t matter, whoever puts the value into this account is the grantor of the trust.
You can be the grantor, the signer typically is the grant, or most people take their Paycheck Money, and Buy kryptos. And they put in Coinbase. Those individuals are the grand tour.
If it’s, if the account holder is an LLC, let’s just talk about that. The account holder is an LLC.
Um, the LLC is the beneficiary of this trust arrangement.
And Coinbase is the trustee or the owner, namely, because it owns the private keys.
The trust already existed before this written agreement. This written document that I have, what I’ve just done, is describe the relationship. So that way, it’s documented, and you don’t need to call me up, not that I mine, but you don’t need to keep relying on me to establish a relationship that already exist.
And it’s a real irrevocable, because the exchange is a business. It has its own policies and it’s going to operate a certain way, and you have no control over it as the account holder.
So it’s a irrevocable, like I just said.
Because quiet, Coinbase or the exchange, whatever third party owns the private keys is the owner at that time.
And the ownership is established by what we would call an adhesion contract and adhesion contract is just basically says it’s like a warranty, you take it or leave it.
So when you’re an account holder at Gemini or any of these exchanges, you have to agree to the terms of the Exchange. You can’t change them and so that that’s an that’s a definition of an adhesion contract.
That’s why this is an irrevocable trust arrangement.
The trust document simply describes the trust relations that are exist.
So, what we’re showing is that we’re showing the ownership of the asset is in that is in trust.
That’s number one.
And number two, we’re showing that because of that situation, there’s no disposition of assets, so when you’re trading, when the account holder is trading from coin to coin within the exchange or wallet to wallet, that doesn’t constitute a disposition of assets. Now, we’re gonna get into more detail in another segment. In fact, I’ve got it right next to me here about them. That’s too much information, so I just want to focus on the trust.
So, I know you’ll have questions about this, and I’ll explain, in due time about what constitutes a disposition of assets, and how we deal with this so-called tax situation at the exchanges. We’re going to get into that.
So, I want to refer to the determination letter that I received back from the Secretary the Treasury.
Now, what we did is, we took, someone’s 1099 and from Coinbase to 99 K.
And we simply asked the IRS to make a determination on these two points, essentially, that the ownership wasn’t with the taxpayer who got the 1099, and there was no disposition of assets.
Therefore, there was no backup withholding requirement. That is really what we’re asking in this determination letter.
So that trust creates that situation. well, It identifies a situation where you don’t have to go to the IRS and ask after the fact, like we did for a personal account. That’s why I did the request for determination letter.
So these are related, the request for determination letter was necessary, because we get a 1099, that was erroneous for a personal account.
If you use this trust account, which really it’s an LLC account, but if you use this truss structure, you eliminate the need to correct a 1099 because there’s no tax consequence because you then have control over how you’re gonna do tax reporting on your LLC. And for most people they’re just gonna pass through any assets into cash flow.
Another issue that comes up is that if you look at IRS Publication 544 and I’d like to give you a couple of references here, just so I know you guys want to do some research.
So, let’s look at IRS Publication 544, and you can simply just Google that on the internet, you can find it. It’s a PDF file, it’s very easy.
And the first, like five pages, I think you’re going to see a definition of fair market value, and if you don’t see it there, you will see there. But if you want to look elsewhere, you can look in the statute’s, you can Google it on the internet and you’re gonna find legal definitions of what constitutes fair market value.
And basically, the IRS says fair market value is what someone is willing to pay, what a stranger is willing to pay for a thing.
And typically, what that means is what’s willing to pay in dollars.
So, as it turns out, Kryptos, as you know, fair market value is not exclusive to the dollar.
You don’t have to sell it for dollars.
So that’s why I tell people it’s not until you treat it as having been sold for dollars that it becomes taxable as having been sold for dollars.
Now, there’s an article I’ve written on … dot com and there’s some points in there that you may want to look at it.
It’s the article that pertains to the recent October 2019 letter ruling.
So I made some points in there and that further explains, and there’s some more references in there if you want to do some more research.
Um, yeah, so like I was saying, the account holder at the exchange is the beneficiary, and the exchange is the trustee, and of course, whoever puts the money in there is the grand tour of that trust relationship.
This relationship does not exist when you have, when you don’t have a third party owner. So Coinbase is a third party owner. But if you’re using a decentralized exchange, like wall of coins, or trays or exodus, that is not a third party owner of your crypto coins.
Especially if you have ownership, exclusive ownership, of your private key, or you can see your private key, and no one else can see it, OK.
Then there’s no third party.
So basically, the trust does not apply when there’s no third party holding your coins.
And it’s the same treatment, or the same treatment of property rights, as if you were holding an ounce of gold or silver or whatever precious metal, or something of value of commodity, it’s treated all the same. because cryptographic currency is defined as property, and I think that was appropriate: I think that was a good call.
So, what’s nice is people say: Well, there are no, there are no rules treating no rules or laws that pertain to Kryptos yet, but that’s not true, because when Kryptos were defined as property, which I don’t know, that’s a tax definition, I don’t see why that it would not be defined as property or intangible property.
Um, that’s a nice definition because what happens is, all the laws for the last 100 years that pertain to property and property rights are now included with understanding how crypto property is treated. So, we do have laws. We do have rules, and we do have treatments of how to regard this particular type of asset.
OK, now, the Trust that ISN, this trust is not a standalone entity, like, like an Estate Planning Trust.
And I tell people that don’t think of this as something where you’re making a trust, and you need beneficiaries. Because, if you die, those beneficiaries will inherit it and this sort of thing. That’s not what it’s for.
A trust relationship exists very simply.
Here’s an example, if I go on vacation for a week and I have my neighbor and I have good relationship and I, and I asked my neighbor, can you watch my dog and just feed them once a day or whatever, twice a day, when I, when I, when I get back, I hope he’s in good shape.
That neighbor, if he agrees, will become the trustee, and the dog is the property, and really, I’m the beneficiary, or my family is the beneficiary, because it’ll take care of that property, and he’ll return it. Hopefully, the dog is still alive, right, so he’s taking care of is a good trustee, I hope.
What we have here is, the trust is a relationship.
It’s not a person, like an LLC is regarded as a person or a C corp is regarded as a person or a partnership with 12 investors are members, is a person because it’s recognized on its own.
In law, OK? This trust relationship is, that’s what it is. It’s just a relationship. So it’s not going to be treated like it’s not going to have its own name.
I do assign a serial number to it only for making sure that it’s authentic.
Know, a couple of years from now, somebody asked me a question about it. I can check and make sure that the document I’m looking at is authentic that we actually did it. It’s not a copy or something like that.
It doesn’t need a tax number.
It’s not going to file a tax return. Again, It’s just describing a relationship for tax treatment purposes.
Um, again, a decentralized exchanges now, a third party owner, I made myself some notes here, sorry.
I know it’s redundant a little bit, but I’m going to try to, I’m trying to repeat myself. I actually do that.
So some of these are kind of subtle points.
A trust relationship is not taxable by default, so a handshake is not taxable, but the people making the handshake could be taxed if they get something that’s taxable but the handshake itself is just a relationship, right?
So you can’t, you can’t really tax that.
So until you report a transaction at a particular way andrzej taxing scheme, it’s not taxable.
So that’s why I keep explaining our whole system, and this is, from what I’ve seen, this is true in Australia, UK, Canada, most Western, and developed nations.
It’s the same, you have to elect the manner in which a thing is going to be taxed. First of all, the thing has to exist. It has to be a partnership. It has to be recognized by the jurisdiction that’s taxing it.
That means the partnership can be just a contract, or it can be a contract that’s registered with the agency that the association, like your state or province.
Once that happens, it becomes a taxable thing and when you report it a certain way when you tell your taxing authority, this is how much money and this is what kind of tax treatment we want, unless it violates any of the rules, It’s going to go along with. your taxing agency is going to go along with that so you decide what that’s going to be.
You’re joint stock company, right? That’s a taxing scheme.
The partnership, limited partnership, limited liability company, all these things.
These are fall under taxing schemes, and you have to report, you have to go out of your way proactively and record, in a certain way.
The trust we’re using is written into the operating agreement for the LLC, so what it’s only doing is describing the manner in which the LLC is going to own and treat and regard that particular asset.
It does not pertain to precious metals that trust us describing specifically the LLC’s relationship to cryptographic tokens or assets or coins. That’s it.
Don’t it’s not to be used for your car, your house, or it wouldn’t even help you in that sense.
It’s a special purpose, trust, I guess you can say.
And by the way, I mean, the limits of the trust are the limits of the relationship you have as an account holder or with the exchange. I can’t write the trust beyond that.
That doesn’t make any sense.
So it’s only for that purpose.
So, now, there are some benefits. The real, the real benefits.
I mean, overall from your limited liability company, include really asset protection Everybody. Here’s this asset protection. What is that?
What does that mean?
That means that you’re able to use a legal structure to spread out your ownership interest in a property or thing or asset, that could be attached by a creditor and let’s say that the tax agency is a creditor.
This easier to treat it that way.
So, if I can, if I can divest my exclusive rights divests, that means get rid of if I can, if I have the exclusive right to spend some money.
And someone sues me.
And my money is held at the bank, right, a third party and someone sues me and I can write a check on that account. But nobody else can do that, only I can do that. And so someone sues me, gets a judgement and gets permission from the court.
He can tell the bank to give that money to the creditor, and there’s nothing really much I can do about that, because I gave the bank the money. And the bank has the duty to pay it over to the creditor because I had the exclusive rights.
But if that money is held in a way where I don’t have exclusive rights over any of it and those rights are shared collectively with one other person that’s not a defendant that doesn’t have a creditor, the same creditor that I do.
It doesn’t matter who sues me because that property right.
I no longer have, I’ve shared it and this is what a limited liability company allows you to do. You can do this with a trust, you can do this with a partnership. Sometimes we have to use a partnership, but the LLC is really clean and neat on doing this. And it’s well recognized in all of our jurisdictions in the states.
You can do a similar organization in Canada, in the UK, and it’s still recognized the same way.
They just call it some different. It’s a limited partnership or a limited liability partnership.
I prefer the limited partnerships over there.
You can do an LLC in New Zealand and Australia works the same way you can do one in Belgium.
It’s really too complicated to organize an LLC in Belgium.
Republic of Ireland is very friendly jurisdiction, so it appears to do an LLC firm for anyone in Europe. Actually, they’re very friendly to anyone in Europe, but looks like.
So the LLCs are really prevalent.
They’re very available to everywhere and you’re gonna get the same benefits because the law works the same way.
All modern law, basically say, look, if someone doesn’t have something, it can’t be taken from him. This is just a common understanding. Right?
So, if I don’t have it, and there’s no trick, I didn’t commit fraud or something.
If I don’t have it, it can’t be taken, So that’s the principle behind the LLC, so specifically, if I get sued, and I’m a member of an LLC, but not the only member, I have to be more than one member now, I know a lot of you have single member LLCs and that works and if you ever need it too, you can in one day you can amend the articles so we can we can talk about that if you need to.
But the LLC allows a situation where if I owe a creditor some money and the creditor gets a judgement against me, the judge says that the creditor can take whatever money I get.
He cannot reach into the LLC and get my money out because my money is not parceled out now in the Operating Agreement.
If it’s described in there, the date and time when I’m supposed to get paid and how much money, there’s a schedule, let’s say, then if that schedule is discovered through the court, which it could be, that money would have to be disbursed to the creditor.
Because it was scheduled to be disbursed to me if there’s no schedule, then that money is not attachable.
So I can literally sit back and wait, and when that writ from the court expires, I can have the money disbursed myself, I can also have a disbursed to a third party, and we can talk about that too, But that’s the benefit of an LLC.
It gives you the power to decide how and when you have ownership rights and ownership determines liability.
You can even have anonymous ownership, it’s not really necessary.
What’s more important is, you know, people come to me and they ask about anonymity and here’s where you’re gonna get it.
Not with being a signer for the LLC at the bank.
Everybody can see that. Everybody can see your name on the Secretary of State’s website, no problem.
What they cannot discover is your relationship to the asset or the property. Because of how you choose to write the shopping agreement, Then only you can do that, and no one can tell you how to do that.
You can, you can make it any way you want. And we’re going to go over some examples of how to do that.
Now, the language I’m going to give you, so that you can look this up. You can do a keyword search.
The language is: Charging order, protection. C, H, A, R G I N G, charging, order O, RDR protection.
That’s what an LLC gives you.
if you can protect yourself against creditors, especially tax collectors. I don’t care if you owe the tax or not.
If you can protect yourself from the tax collector and creditors, you’ve got covered, You’ve got your asset covered, it’s protected, and everybody can see it. It’s like a glass cage, they can see it, but nobody can touch it, That’s what an LLC does.
And then on the back end, you’ve got this trust treatment. This trust that this described as recognizing a trust relationship.
And now you’ve got this situation where the IRS agrees there’s no disposition of assets because of the ownership and the way that’s managed, OK?
So this is really solid way to set up your contract and to own and establish your property rights in cryptographic currency.
So here’s what we’re really doing, The tax treatment.
The way we’re doing this, it allows you the preservation of capital, but also the consolidation of capital, because as you are probably aware, if you look around you see anytime someone outside the system is accumulating wealth, He ends up getting destroyed.
I mean, you can see it in the news.
Lots of times there is an agenda to prevent people from Consolidating capital unless they play ball with the associations, the United States, and these other globalist people, so to speak, OK.
So by having protections on the tax side of it, you’re going to be able to preserve capital. And I still gotta be careful about how you’re managing assets, but at least it gets you out the gate.
So preserving capital and wealth, consolidation, two key things.
You’re gonna, you’re going to be really concerned about this when you start getting some windfall and you want to, you want to consolidate and you want to have some power. You don’t want to be scared and start just spending money over here and there.
Just so you think you’re diversifying because you don’t understand what diversification is. You want to be able to consolidate your capital away.
That’s protected and maybe everybody can see it or not, but they can’t get at it because it’s their own system. Nothing. There’s no trick. Here’s their own system.
So I would like to say you have near nearly absolute protection against third party claims.
Obviously, I mean, you can do all this stuff. And then somebody can Magee. Right. Or somebody can break in your house and whatever they can.
What if they can take your car? I don’t know.
So, pretty much, you’re pretty well protected, OK. This gives you a solid foundation. You can then start doing your investments, you can set up other structures.
You can get into other securities, um, and one of the key elements in this risk management.
This avoiding risk avoiding loss is the need or the ability to avoid the need for litigation.
So, for example, if you’re protected, there’s no need to free to defend the rights of property that you might have, because those rights are not at risk.
So, it doesn’t matter if someone, soon as you and wins, he’s not really going to get anything, you know, maybe some people want to defend it because they wanna get the truth or something.
But ultimately, if you’re collection proof, then there’s no need to pay money for litigation costs.
not and that could be substantial, in some cases, it could be, you know, hundreds of thousands of dollars. You never know.
So, again, I’ve said this I say this after.
Usually the first conversation I have with people with tax benefits are minor.
They really are the wealth accumulation benefits are those that are substantial, OK? You’ll see, once you get past the tax thing, it’s not really a big deal. I mean, you can really mess up on the tax thing, and you can recover quite nicely.
Not as nicely as if you had planned ahead, but you can recover and you can get out of a bad situation.
So, that’s kind of, Minar.
You know, your tax authorities are pretty pretty easy. Going when it comes to collections and payments. I don’t care what country you’re entering. You might disagree with me, but I can, I can show you how that works.
And the reason why, but, um, yeah, they’re minor.
The biggest risk you’re going to have is, is not having an adequate asset allocation plan, not knowing how to manage risk. And here’s an example of what I’m talking about.
You’ve never had more than a million dollars in your life. You never even had close to that and tomorrow, you’re getting $5 million liquid.
if you don’t have a plan for that and a pretty good plan?
Um, it’s not going to last long. I mean, the just statistics tell us that.
So, I think that’s, I don’t want to get into too farming.
We can go, and we can go more, if you want, but I just want to cover these main points and maybe see if that’s prompted some some questions. Maybe that might be a good time for.
We’re going to have some questions, we think.
Hey, yeah, no, Yeah.
I’m getting an echo or you know questions yet.
OK, but can you go over some of the stuff we’re going to cover in the future just to get ready?
Yeah. I want to go over the detail the specific detail of the determination letter that I’ve been using.
I’m not gonna publish the whole letter, but I’m gonna go into the actual legal arguments that I gave to the IRS, so you all understand how this works.
It’s then it started making sense, and there’s a couple of analogies that I’m going to make about when you have gains, OK. And fair market value, We’re going to talk about that more specifically on a personal side, but this time, I just want to talk more about the actual trust.
OK, it’s, I mean, it’s special for the crypto asset. But, really, it’s identifying a relationship that already exists, and it’s the property treatment within the LLC.
OK, cool, of course, we’ll be able to take questions right inside the privacy, fight club, Slack chat.
So, if people are watching this later, I mean, you know, most people are at work right now, but if you’re watching this later on, and you want to ask them questions, go right ahead in the discussion section inside our Slack room, and be sure to tag Jonn so that he sees the question.
And I’ll be happy to interact there. All right. Anything else, before we wrap it up for today? John?
No, that’ll do it. All right. Excellent. All right, thanks for watching.
Everybody will be back this time next week, with Crypto Profit and Taxes, Part two, and, again, feel free to to tag John to tag me in the discussion section in the the Privacy Fights Slack group. All right, Thanks, everybody. We’re out.
November 19, 2019