11.26.2020

Why You Should Treat Cryptocurrencies As Securities Under US Law

Share

Want to pay up to 40% taxes on your cryptocurrencies?

If not, every non-US citizen should treat cryptocurrencies as securities under US Law. 

“Securities” are defined and governed by the Securities Act of 1933 and the Securities Exchange Act of 1934.

The Securities and Exchange Commission (SEC) has provided very little guidance on cryptocurrency matters.

Private sector legal experts are generally unwilling to make definitive statements as to whether cryptocurrencies generally (and even certain coins specifically) are or are not “securities.”

Each crypto entrepreneur is forced to navigate a mountain of complex laws and regulations and hope they don’t make a mistake.

But non-US citizens in the crypto space as entrepreneurs and investors also face challenges in determining their tax obligations as well.

I’m not talking about income taxes.

Not capital gains taxes.

No.

I’m talking about the US estate tax.

Problem

Under US law, “shares” or “securities” of US companies are considered “US property.”

“US property” is subject to US estate tax laws – even if it is owned by non-US citizens.

Many foreigners are surprised to learn that their ownership of US stocks like Apple, Google, Amazon, Tesla, etc (as well as privately held companies) makes them subject to US estate taxes.

The estate tax is applied to the fair market value of the US shares or securities you hold at the time of death.

The law exempts the first $60,000. Everything above that amount is subject to varying rates topping out at a staggering 40%! (read more here)

But what about cryptocurrencies? Are they subject to US estate taxes?

The best answer is not very satisfying – it’s unclear.

Just as the SEC has failed to provide adequate guidance on cryptocurrency matters, so too has the IRS.

Many cryptocurrencies, like Bitcoin (BTC), are decentralized – meaning, there is no company and no company headquarters.

Even if we assumed that a cryptocurrency like BTC is a “security,” it would be difficult for the IRS to argue that BTC is a “security” of a “US based company.”

There is no Bitcoin headquarters.

However, the same is not true for all cryptocurrencies.

For example, Ripple, RippleNet, and XRP were all created by Ripple Labs Inc. – a US based company with headquarters in San Francisco.

The IRS could argue that one of them, like XRP, is a “security” of a “US based” company and is therefore subject to the US estate tax.

Admittedly, this is speculative.

Solution

There is an easy solution to the cryptocurrency / “security” / estate tax dilemma.

Non-US citizens can exempt their cryptocurrency from US estate taxes by placing them in a foreign company – like a RAKICC company incorporated in the UAE.

Esquire Group is one of a limited number of corporate service providers licensed by the Ras Al Khaimah International Corporate Centre (RAKICC) – a Corporate Registry responsible for the registration and incorporation of International Business Companies.

By transferring your cryptocurrency to your RAKICC company, you are no longer the owner of them.

Your RAKICC company becomes the legal owner of the cryptocurrencies.

You will only own shares in your RAKICC company – this is critical.

Because the RAKICC company is a non-US (i.e. foreign) corporation in the UAE, its shares are not considered “US property.” As a result, you cannot be held liable for US estate tax due to ownership of shares in a RAKICC company – even if that company owns cryptocurrencies that legally qualify as “securities” of “US companies.”

Plus, your RAKICC company is a foreign entity that can exist perpetually. It doesn’t die. As a result, your RAKICC company is not subject to US estate taxes.

Put simply, a RAKICC company shields your estate, your heirs, and your stocks from the US estate tax.

·  Step 1 – Form a RAKICC company

·  Step 2 – Transfer your cryptocurrency to your RAKICC company

·  Step 3 – Legally avoid US estate tax

Naturally, you can also put your stock portfolio inside your RAKICC company to shield them from the US estate tax.

Penny Smart, Dollar Foolish

Crypto currencies are notoriously volatile.

You can pay relatively little to place them in a RAKICC company… or, your estate can pay 40% on millions in the future.

What if your heirs are not liquid enough to cover the US estate tax?

Do you want your heirs to cash out of a position just to pay taxes to a foreign country?

Cashing out to pay taxes could cost millions in the long run.

Suppose your heirs find paying US estate taxes a difficult pill to swallow…. do you really want them litigating securities law and estate taxes in court?

Doing so would be extremely expensive, time consuming, and stressful.

Today, it can cost tens of thousands of dollars in legal fees to get an expert just to tell you if a single crypto currency is or is not a “security” under US law.

For much less, you can put your cryptocurrency inside a foreign company and never worry about the US estate tax again.

Protect Your Family & Loved Ones

The cryptocurrency community has a strong libertarian contingent with a healthy distrust of government.

More sympathetic, I could not be.

Perhaps you accept the risks that come with fighting governments head-on.

But what about your family?

You can make it difficult, if not impossible, for the US government cannot seize your coins.

But that doesn’t make estate tax liabilities disappear. The US government can imprison people for contempt of court and seize other assets to satisfy tax liabilities.

Failing to address the US estate tax today could put your heirs in conflict with the US government in the future.

Are You Ready?

Our US Estate Tax Blocker Solution will help protect your cryptocurrency and stock portfolio from the US estate tax.

Related Posts

02.08.2022

The Days of Operating Substanceless “Shell Companies” is Over

The Days of Operating Substanceless “Shell Companies” is Over
01.25.2022

Sometimes the Best Advice is to do Nothing

Sometimes the Best Advice is to do Nothing

Page [tcb_pagination_current_page] of [tcb_pagination_total_pages]