Rally Tax Implications

I’m curious about the tax ramifications this year on my tax returns and I’m sure that the one hundred million new cryptocurrency users that Rally intends on recruiting will have similar concerns. Please forgive me if there has been a post here in this forum covering this subject. I searched through the headings and couldn’t find anything on the subject of taxes and the IRS.

It’s no secret that the US Government and global leaders have turned an eye onto the cryptocurrency market in recent years. Things are starting to heat up more and an infrastructure of reporting is currently being laid out globally. President Joe Biden’s 2022 budget proposal includes several new crypto reporting requirements.

Biden’s proposed new budget states “The proposal would require brokers, including entities such as U.S. crypto asset exchanges and hosted wallet providers, to report information relating to certain passive entities and their substantial foreign owners when reporting with respect to crypto assets held by those entities in an account with the broker.”

Is Rally currently reporting to the IRS?

Is Rally considered a broker or exchange? If so, will holders receive a 1099 from transactions made in 2021 at the start of 2022?

Will Rally provide a total of transactional events such as creator coins sent as rewards, cash exchanged for crypto, holdings, gains, and losses?

Are rewards from Rally considered a gift or income?

Are there plans for Rally creating software that can link to accounting applications such as Quickbooks?

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Hey RobR. I’ve poked our legal side to see if they can answer some of the specifics, but in general you have to ask a few of these questions to your local tax professional (e.g. whether Network Rewards are gifts or income, etc.).

The proposed budget has a lot of questionable/extremely-vague verbiage that could cover an awful lot, including individuals with liquidity provisions. Those individuals would then have to report on users transacting in pools they’re a part of which is borderline impossible given the nature of most decentralized pools and smart contracts. I don’t imagine we’ll be able to comment on it until it’s formalized with more specific verbiage, and/or the related government entities provide clarity.

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Tax so broad and confusing and the work involved is extreme as you pretty much got to cover all bases.

But to simplify it:
cash out = tax
stay in crypto no tax?

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At least in the US, the taxable income event can be immediately on receipt; not on cash-out.
And remaining in crypto can incur capital gains at the end of the tax year, or on any conversion/swap/stake/unstake, etc…

So to your point

Not necessarily. Not 100% of the time for the US; taxable events can happen on any transaction of crypto, including receipt.

To everyone: Please please please consult with your local tax professional. Especially if you think you may have already made some tax errors, consulting with them can ensure you’re on the path to correction and legal compliance sooner than later, and can usually guide you out of trouble.

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Do you know if Rally is giving 1099s at the end of the year? I wasn’t sure if Rally is keeping track of all these transaction. How would anyone keep track of all their transactions when we are all doing several a week.

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hi there,
I’m sorry but I believe you are incorrect, or I’m misunderstanding what you mean as “receipt” of crypto. To me that means “purchase or acquiring of”. You only pay tax on crypto upon sale of such (or swap, or using crypto to purchase something). The cryptocurrency tax rate is based on the IRS ruling (2014) that dictated all crypto should be treated like stocks or bonds (aka capital assets), rather than a fiat currency (like Euros or dollars).

You have to pay taxes whenever you sell your capital assets at a profit. So, when you buy products/services with digital currency transactions, and the amount of crypto you spend has increased in value over what you paid for it, you trigger capital gains taxes.

you are supposed to keep a spreadsheet of sorts of your sales and profits and losses. When you sell any crypto, that is when you realize the gain or loss… so you are supposed to keep track of when you buy, and when you sell, just like stocks… it can get quite complicated when you are making 10 transactions a day, shifting money around from different crypto… and by quite complicated I mean near impossible to the point it will make you quite looney :frowning:
Mike B

This is why I’ve insisted everyone speak to their local tax professional.

I can say for certain that in my case, each receipt (staking rewards, Creator Coin donation received, $RLY Community Activity Rewards, etc.) is income. You can also note this is the case by default with any of the crypto-tax help software such as Koinly.
This has also been the case for most of the individuals I’ve discussed with in the past few years who have gone to their local tax professionals as well.
I imagine for many of the Creators on the platform this will be the case as well, and probably a significant number of users.

And even for those that won’t be required to mark receipt of $RLY or CC as income, it will be a $0-cost basis event that likely immediately gets converted to or from $RLY or a CC, and thus immediately a taxable event. (e.g. weekly rewards getting cycled into CC or bridged-out to mainnet $RLY; which may function as a ‘swap’)

In the absolute best case, a user will luck out and report them in a way that works out for them.
In the worst case, someone will look at this thread or others and make the wrong choice for themselves.

All users should consult with their local tax professional.

this piece we totally agree upon. However, everything I have seen and researched, including the IRS documents themselves, show that Crypto is treated exactly like stocks. So when you sell, that is when you realize a gain or loss, which makes total sense.

If you buy and hold 1000 bitcoin lets say, using your thoughts, when do you draw the line and how much do you pay? so lets say you buy 1000 coin at $1 each… you certainly do not pay tax on that purchase, as that would be sales tax and there is no sales tax on stock or crypto… but lets say it goes up in a week to $2, if does not make sense to pay taxes on that $1000 you just made as you have not solde the coin and have not realized the gain yet… as the price could go down to $.50 a coin the next day and you would have a 50% loss…

the only time you pay taxes on anything such as crypto or stock is upon the sale of such, as that is documented price… you should be keeping track of how much you paid for those coins you sold though, which is a tricky bit… some coin we get as rewards so we pay nothing for them and would have to be taxed for the full amount (no loss there as it’s 100% gain)… some we purchase and we only pay tax for the amount of money OVER what we paid (or a loss if we lost money)…

so yah, consult a tax professional! :slight_smile:
Mike B

yes it IS income for sure and you must pay tax on 100% of the cost basis of such… but not upon receipt of said coins… ONLY when you sell them. you are supposed to keep track of how many coins you got for “free”, and when… that way you know how much to pay in taxes when you SELL said coins.

Mike B

As I’ve clearly stated, this may be true in your case, but it is not true in most of the cases I’m aware of, including my own.

Please do not argue these points any further. Our official and only advice is to consult with your local tax professional.

There will be 1099’s issued at some point in compliance with platform obligations, but that’s not rolling out immediately.
-Legal

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