Making or accepting payments in virtual currencies could give rise to tax
information reporting and withholding. In Notice 2014-21 the IRS concluded
that Forms 1099-K, 1099-MISC and W- 2 reporting can apply to cryptocurrency payments. Also, withholding taxes may apply.) 18
The introduction of Bitcoin-related futures contracts, the offering of cryptocurrency investment trusts and exchange-traded notes (ETNs), and the
development of virtual currency secured or paying notes, loans and other
instruments are likely to raise new and different regulatory concerns.
Our world rapidly changes around us. Virtual currencies, ICOs and tokens
are one more set of examples of change. In spite of the risks and a perceived
level of notoriety, there has been substantial growth in consumer and inves-
tor participation in the virtual currency, ICO and token-related markets.
Nevertheless, there are substantial regulatory issues of significance. Law
and regulatory guidance and enforcement is evolving. Ignoring virtual
currencies and blockchain seems unwise given the level of growth. Bank
leadership, management, and those in compliance roles need to take steps
to understand these products, their technologies and their markets, as well
as the current and evolving regulatory risks in order to take advantage of
new opportunities while avoiding unnecessary costs. ■
ABOUT THE AUTHOR
STEVIE D. CONLON is Vice President, Tax and Regulatory Counsel, at Wolters
Kluwer. She leads the Compliance Solutions Fintech Task Force and the related
U.S. Advisory Services group, which offers consultative expertise to help banks
and other financial institutions comply with regulatory requirements. She often
speaks and writes on cryptocurrency and financial derivative tax and regulatory issues. A former partner of large law firms, an attorney licensed to practice in New York and Illinois, and a CPA, she has co-authored a legal treatise,
a book, and over 50 articles on financial derivatives and tax & securities law
compliance issues. She has extensive experience analyzing financial industry
regulatory compliance challenges, evaluating industry impact, and advising
clients on compliance and risk mitigation strategies and solutions. Conlon has
been quoted in various news publications, including The Wall Street Journal,
Forbes, USA Today, Chicago Tribune, Barron’s, Securities Technology Monitor, and
InvestmentNews. She can be reached at email@example.com.
Stevie Conlon greatly appreciates the assistance of her colleagues Larry Perlman,
John Kareken and Cynthia Lapins with this article.
VIRTUAL CURRENCIES: WHAT BANKS NEED TO KNOW
noaction/2018/ cryptocurrency-011818.htm; https://
3. There is a growing awareness and application of data
storage and smart contracts block-chain solutions for
business. For example, IBM and the world’s largest
shipping company, Maersk, are collaborating with over
90 participants to move their work to a blockchain.
4. Coinbase and Prime Trust have announced they
have custody products aimed at aiding cryptocurrency
adoption. https://www.coindesk.com/coinbase-rolls-out-crypto-custody-product-for-institutions, https://www.
html; https://deadcoins.com/; https://coinmarketcap.com/
7. Commodity Futures Trading Comm’n v. McDonnell,
No. 1:18-cv-00361-JBW-RLM, slip op. (E.D.N. Y. Mar. 6,
2018) (mem.). The ruling confirms that cryptocurrencies
are defined as commodities. But as further discussed, that
does not mean that a specific cryptocurrency or token
could not also fall within the definition of an investment
contract that is treated as a security for purposes of
16. The scope of CFTC regulation of trading platforms
is not currently comprehensive. For example, it has not
pursued regulation of non-leveraged cryptocurrency
products. See, e.g., J. Cieplak and C. Griffith,
Cryptocurrency and Initial Coin Offerings: Despite a
Plethora of Regulators, Gaps Remain, Banking & Financial
Services Policy Report (April 1, 2018).
See https://www.cftc.gov/Bitcoin/index.htm for the
CFTC’s virtual currency webpage that includes podcasts,
advisories, primers and other brochures.
10. The determination of whether a particular
cryptocurrency or token is a security depends on
whether it is considered an “investment contract” under
the so-called Howey test. Note that the CFTC and
the SEC acknowledge that a virtual currency or token
could simultaneously be both a commodity (subject to
CFTC fraud-related oversight) and a security (subject to
SEC regulation). SEC Warns Cryptocurrency Trading
Platforms Raise Significant Federal Securities Laws
Compliance and Liability Risks, Stevie D. Conlon,
Anna Vayser, and Robert Schwaba, Wolters Kluwer,
April 30, 2018, CS-18-4949 227872948 SEC Blockchain
Commentary.; SEC v. W.J. Howey Co. (Sup Ct 1946),
1945-47 CCH Dec. ¶90,341.
pdf. The SEC report confirmed that issuers of distributed
ledger or blockchain technology-based securities must
register offers and sales of such securities unless a valid
12. SEC Warns Cryptocurrency Trading Platforms Raise
Significant Federal Securities Laws Compliance and
Liability Risks, Stevie D. Conlon, Anna Vayser, and Robert
Schwaba, Wolters Kluwer, April 30, 2018, CS-18-4949
227872948 SEC Blockchain Commentary.
13. J. Cieplak and C. Griffith, Cryptocurrency and Initial
Coin Offerings: Despite a Plethora of Regulators, Gaps
Remain, Banking & Financial Services Policy Report
(April 1, 2018). https://www.crowell.com/files/20180401-
14. Cryptocurrency Global Regulations Tighten as
Financial Crime Risks Intensify, Melonia A. Bennett, July
13, 2018, https://www.theblockchainmonitor.com/2018/07/
risk-and-regulation-in-aml-tax-ico-scrutiny-provenance-pocs; New Q2 2018 Report Reveals Dramatic Increase
in Crypto Theft and Corresponding Three-fold Rise in
Cryptocurrency Money Laundering, July 3, 2018, https://
Order 13827, March 19, 2018, https://www.treasury.gov/
15. Notice 2014-21, IRB 2014-16, 938. For a general
discussion of the notice, see Taxation of Bitcoin, Its
Progeny, and Derivatives: Coin Ex Machina, Stevie D.
Conlon, Anna Vayser, and Robert Schwaba, Tax Notes,
February 19, 2018.
16. Note that the scope of the summons was narrowed
substantially. U.S. v. Coinbase, Inc., et al., 3:17-cv-01431-
JSC (DC Cal. ND); Taxation of Bitcoin, Its Progeny, and
Derivatives: Coin Ex Machina, Stevie D. Conlon, Anna
Vayser, and Robert Schwaba, Tax Notes, February 19, 2018,
Bitcoin Forks and Livestock Law? Tax Day 2018 Is a
Different Animal, Stevie Conlon, Anna Vayser and Robert
Schwaba, April 9, 2018. https://www.coindesk.com/got-free-crypto-fork-heres-tell-irs.
18. Taxation of Bitcoin, Its Progeny, and Derivatives: Coin
Ex Machina, Stevie D. Conlon, Anna Vayser, and Robert
Schwaba, Tax Notes, February 19, 2018.