How to solve tax disputes in web3 companies: take FTX and micro -strategy as an example

Author: taxdao

1. Introduction

With the rapid rise of crypto assets, crypto assets have become the core component of the global financial sector.However, its unique decentralization and anonymity also brings unprecedented tax challenges.As the leader of global fintech, the United States has established a strict system in the tax management of encryption assets.According to the regulations of the IRS (IRS), cryptocurrencies are considered as property, so their trading, exchange and transactions may cause capital returns or losses, and they need to be declared according to capital profits tax.In addition, the income brought by mining, airdrop and hard fork must also be taxed.

However, due to the rapid iteration of crypto asset technology and lag in tax supervision, in this emerging field, taxpayers and tax authorities often have controversial taxes or tax liability.At this time, taxation provides efficient and solutions for both parties.Through negotiations and negotiations, taxpayers can reach an agreement with the tax authorities to end the dispute and avoid more severe punishment.

2. Overview of the US tax and reconciliation system

2.1 The development of the US taxation system

The US tax reconciliation system is rooted in the Taxpayer Rights Act.According to US law, taxpayers are protected by the Taxpayer Rights Act while undertaking taxpayers, and they have the right to enjoy the right to knowledge, enjoy high -quality services, finally determine the right, confidentiality, have the right to question IRS and appeal, and other ten claims.right.One of them is “the right to enjoy a fair and fair tax system”, which clarifies the fact that the taxpayer has the right to request the tax system to consider the facts and situations that may affect its potential liabilities, payment capabilities, or provide information in time. If the taxpayer encounters financial difficulties,Or the National Taxation Bureau (IRS) failed to properly solve the taxpayer’s taxpiece problem in a timely manner through its normal channels, and the taxpayer has the right to get the assistance of the Taxpayer’s Defense Services Office (TAS).Under the guarantee of this right, when it is in a specific situation (for example, the taxpayer cannot repay tax debt in full, or the full repayment of tax debt will bring economic difficulties), which can be alleviated by submitting a settlement agreementThe tax amount is to ensure that taxpayers can bear basic living expenses.

2.2 Conditions for the US tax reconciliation system

The tax and reconciliation system is a tax dispute between the taxpayer and the official (such as the National Taxation Bureau, the State Government, etc.), but when it encounters a difficult taxable amount during the tax inspection process, it is a kind of solving the dispute through non -litigation methods.way.In the United States, the alternative dispute resolution (ADR) was introduced into the field of administrative procedures in the 1990s, and was later established as permanent law by Congress to encourage federal administrative agencies to apply other informal procedures such as mediation and negotiation.Frequent means.

The OFFERS in Compromise system refers to the taxpayer and the IRS (IRS) in accordance with the administrative and criminal liability (including punishment, interest, and other taxes when taxpayers cannot fulfill their taxpayers (including punishment, interest, and other taxes.Additional) and a binding agreement on taxables allow taxpayers to solve their tax issues with the amount lower than the amount of owed.However, the premise of this agreement is that the taxpayer completes the application and meets specific conditions:

a. When the existence or amount of debt has objections, IRS can accept reconciliation.

b. If you are worried about whether the amount of owed can be recovered, that is, when the taxpayer’s assets and income are lower than the full amount of tax debt, IRS can accept reconciliation.

c. Taxes are legal in law and can be recovered in full, but the full payment will cause the taxpayer’s economic difficulties or cause unjust in special circumstances. IRS can accept reconciliation.

In order to successfully reach a tax settlement (OIC) agreement with the IRS, individuals or companies need to pass the following specific steps to complete the application to the IRS and finally get approval:

STEP 1: Collect personal financial status information (including cash, investment, personal assets, expenses, etc.)

STEP 2: If it is an individual, fill in Form 433-A, if it is a company, fill in Form 433-B, and calculate a reasonable tax bill

STEP 3: Attach a copy of the relevant file to support the content of 433-A/433-B form content

STEP 4: Fill in Form 656, select the tax plan for reconciliation, and ensure that the tax amount of the plan is greater than or equal to the calculation results of Form 433

STEP 5: Pay the first tax payment for the first tax payment with $ 205

STEP 6: Send the application to the IRS

STEP 7: If the application fails, the taxpayer can appeal to the Independent Office of the IRS within 30 days

In addition to OIC, the IRS also provides other alternative dispute solution mechanisms (ADR), including Fast Track Media and Fast Track Settlement: When the taxpayer cannot reach consistent with the review authority on tax issues, reviewThe agency shall prepare Form 14717 and attach a statement of issues and valuation reports on both parties to appeal. After the appeal department is accepted, the mediators will be assigned to promote reconciliation through the mediation meeting.If the two parties fail to reach an agreement in the appeal, they can enter the appealed mediation according to the situation, and the case will be assigned to another appeal office for re-trial.

2.3 Characteristics of the US tax reconciliation system

The United States is affected by the trend of pragmatism and administrative democratization to a certain extent. Although there are certain regulations on the scope of reconciliation in legislation, the tax court encourages reconciliation.In ADAR), the legislators also proposed “authorize and encourage the application of mediation, negotiation, arbitration or other informal procedures for the application of federal administrative agencies to quickly deal with administrative disputes.” Implementing to the field of tax administration, about 80%of small tax litigation casesCan reach off -court reconciliation before trial, so as to end litigation procedures.

3. Tax reconciliation of FTX and micro -strategy

3.1 FTX tax reconciliation case

FTX was once a well -known global digital asset spot and derivatives (encrypted assets) trading platforms. Founded in 2019, it has become the world’s second largest virtual currency trading platform in a short time.

In 2022, Sam Bankman-Fric, who was the CEO of FTX, combined with another trading company, Alamenta Research, which was founded by it for financial fraud, resulting in the break of the FTX capital chain. FTX, Alameda Research and more than 134 other subsidiaries applied for bankruptcy in the United States to apply for bankruptcyInvestors loses billions of dollars.

During the bankruptcy process, the National Taxation Bureau (IRS) successively filed a preliminary tax claim to FTX and its subsidiaries (including FLX Trading LTD., Alameda Research, etc.), which was further amended to US $ 24 billion and stated that it was with 2018 -Income tax, employment tax and fines owed during 2022.However, Lawyer FTX submitted documents to the bankruptcy court in December 2023, objected to claims, and asked the IRS to provide corresponding documents to confirm its claims on FTX and explain how it estimates the payable tax it should be paid.In the document, Lawyer FTX said that FTX “has never received any amount close to the National Taxation Bureau’s $ 24 billion in tax claims” and lost a lot of funds, and refused to bear the so-called “misappropriation income” generated by the so-called “misappropriation income from Sam Bankman-FRied theft of FTX customers’ funds.”Income tax liability and employment tax liability for compensation.At the same time, in the statement, lawyer FTX emphasized that “the only source of the National Taxation Bureau’s recovery is compensation from the victims.”Based on this, the FTX submitted a settlement application to pay the US Taxation Bureau of $ 200 million in priority tax claims, and a lower priority claim of $ 685 million.

In June 2024, the FTX and the IRS (IRS) finally reached a settlement agreement. IRS will receive a priority claim of $ 200 million in the FTX bankruptcy case and will be paid within 60 days after the company’s proposed reorganization plan.In addition, the agency will receive a lower priority claim of $ 685 million to pay customers and other creditors.

3.2 Cases of micro -strategy taxation

In 2022, the Washington Chiefs Karl Racine, the founder of MicroStrategy, and the cryptocurrency billionaire Michael Saylor, sued him and his company “has not paid income tax for at least 10 years in the SAR”, its companyMicroStrategy has helped him escape more than $ 25 million in the area income tax by filling in the false W-2 form information.In the tax reporting form, Saylor claimed that he lived in Florida, who did not levy personal income tax, but actually lived in a seaside apartment in Washington.At the same time, Saylor reducing the risk of tax avoidance by receiving a salary of only $ 1 and a large amount of welfare arrangements (such as private plane travel, using car drivers and safety teams), which is transferred to the company to bear federal taxes for welfare.The benefits received by Saylor are not considered taxable.In August 2022, Saylor, a CEO of Micro Policy, was transferred to be transferred to Executive Chairman.

This is the biggest income tax fraud recovery case in the history of the Columbia SAR, and the first lawsuit after the region revised the False Claims Act.EssenceAccording to this allegations, anyone who deliberately submits or causes the government to submit false claims to the government shall bear three times the compensation for government losses and a fine linked to inflation. Therefore, experts have believed that Saylor shall bear at least $ 75 million in fines.However, in the face of the lawsuit, Saylor insisted that he moved from Virginia to Florida more than ten years ago and bought a house on the Miami Beach.Voting and fulfilling jury obligations.Micro -strategy clarifies that the company has no right to supervise and influence Saylor’s personal taxation issues, so it refuses to bear the responsibility of Saylor’s “tax fraud”.In the case of the words of the two parties, all parties expressed their hope to avoid any time, costs and inconvenience required for further lawsuits, and to resolve all controversy and potential legal claims based on the behavior of the behavior.Therefore, on June 3, 2024, Saylor and the Chief Prosecutor of Washington achieved reconciliation on tax fraud for $ 40 million.

4. Revelation of the US tax reconciliation system

4.1 Tax Revelation caused by the FTX case

As the second largest virtual currency trading platform in the world, FTX has led a background that has damaged the market’s confidence in encrypted assets.The reached by taxation in this case involves not only controversial taxes in the Taxation Bureau and FTX, but also involves the bankruptcy of the FTX exchange, as well as compensation for the victims of the fraud.The reconciliation agreement avoids the debtor’s spending time and expenses to litter, helping the institution to deal with customer repayment issues in the bankruptcy procedure, and protect the rights and interests of multiple parties.Therefore, in the face of high debt claims, there are some opportunities to pass a multi -angle appeal at a certain number of claims in the United States, and reached a reconciliation with the State Taxation Bureau with a relatively low claim fee.

4.2 Tax Revelation caused by micro -strategy cases

The United States implements the dual -track legal system of federal law and state law. Therefore, on the basis of understanding federal law, we must always pay attention to changes in state law.Different states have indeed provided a certain benefit for the taxpayer (such as the Florida government exempt personal income tax) and a reasonable tax avoidance space.However, there is a greater risk of tax avoidance methods in the place of residence, especially under specific strict legal regulations.Therefore, enterprises should assist employees in reasonable tax planning in accordance with the law to ensure that tax behavior is compliant and transparent.

At the same time, it is worth noting that in this case, Saylor passed taxation and avoided a fine of up to $ 75 million in the “False Declaration Law” and ended the Washington government’s lawsuit for $ 40 million.It can be seen that taxation and reconciliation can avoid further litigation burdens, avoid long and expensive legal procedures, and can also help taxpayers to reduce the burden on fines.

5. Conclusion

Because cryptocurrencies are decentralized, anonymous, global liquidity and other characteristics, individuals or companies holding crypto assets are difficult to regulate and difficult to obtain evidence for tax risks.Become a tax avoidance.

In the case discussed in this article, IRS initiated a high tax debt claim to the FTX, and in the face of FTX’s questioning of its debt amount, IRS failed to conduct more strict investigations on this encrypted asset trading platform and provide rigorous evidence.It is to choose to accept the reconciliation plan of the FTX lawyer team to settle with the “US $ 24 billion” tax of nearly 100 times less than the IRS previously requested.The “cryptocurrency billionaire” Saylor’s tax evasion case did not pass the legal procedure to the end, but instead compensated the Washington Special Administrative Region Government through taxation.Judging from the results of the two cases, the application of the tax reconciliation system in the encryption industry is feasible and effective.For the current “immature” encryption industry and “imperfect” encrypted asset tax policies, the tax reconciliation system has strong practicality, which is conducive to improving tax administrative management, effectively resolving tax disputes, reducing the pressure of tax inspection, while the pressure of tax audit, and at the same timeIt also provides an effective means to deal with tax compliance supervision and make up for tax negligence.

Reference

[1]. Liao Shimei. (2017, 03). On tax administrative dispute reconciliation mechanism. Fiscal and tax rule 386.61-65

[2]. Yan Yunqiu. (2013). Tax reconciliation of legitimacy analysis. Law Magazine 8.40-48

[3] .civil division, (2024, february 23). The False Claims Act.

[4]. Helen, P. (2024, JUNE 03). Micro-strategy company and Michael Saylor reached a reconciliation on tax cases, claiming $ 40 million.

[5] .internal revenue service. (N.D.), Taxpayer Rights Act 10: There is the right to enjoy a fair and fair tax system.

[6] .internal revenue service. (N.d.), topic no. 204, offers in compromise.

[7] .internal revenue service. (N.D.), “Taxpayer Rights Act”.

[8] .Steve R. Akers. (2014, February), heckerling musicS 2014, bessmer trust

[9] .super works of the district of columbia.

[10] .super works of the district of columbia. (2024, May 31). Complaint in intervention 0.

[11] .techflow. (2024, june 06). FTX reached a settlement agreement with the US National Taxation Agency for $ 24 billion in tax claims_Tencent News.

[12]. MicroslateGy and its founder Michael Saylor reached a $ 40 million settlement agreement -currency industry. (2024, june 03).

How to solve tax disputes in web3 companies: take FTX and micro -strategy as an example

1. Introduction

2. Overview of the US tax and reconciliation system

2.1 The development of the US taxation system

2.2 Conditions for the US tax reconciliation system

2.3 Characteristics of the US tax reconciliation system

3. Tax reconciliation of FTX and micro -strategy

3.1 FTX tax reconciliation case

3.2 Cases of micro -strategy taxation

4. Revelation of the US tax reconciliation system

4.1 Tax Revelation caused by the FTX case

4.2 Tax Revelation caused by micro -strategy cases

5. Conclusion

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