Enterprise Web3 Tax Strategies

September 27, 2022

Digital assets allow for more efficient, transparent transactions among businesses. This new asset class requires critical web3 tax strategies.

Meet Jason Schwartz, Tax Partner, Fried Frank

Jason Schwartz is a tax partner and co-head of Fried Frank’s Digital Assets and Blockchain Practice and is a resident in the Washington, DC, office. He specializes in tax issues relating to financial products, securitizations, funds, treaties, lending, and crypto. Jason is recognized as an “Up and Coming” lawyer by Chambers USA in Tax and The Legal 500 US in Tax: Financial Products as a “Next Generation Partner” from 2017 to 2021. He writes and speaks extensively on digital assets, and his web3 wallet even includes a sizeable collection of long-form generative art NFTs.

At the D2 Summit, Jason discusses legal, regulatory, and tax considerations for businesses moving into digital assets. He and his firm work to help educate policymakers on the importance of adopting sensible regulations that promote innovation while curbing abuses. D2 asked Jason to share his pre-game perspectives.

D2: Jason, why is now the time for enterprise businesses to get into the decentralized space? And what is the most essential matter C-Suite executives need to understand to usher in this new landscape?

Jason: We’re at a pivotal time in the evolution of public blockchain technology, where the tools are well-developed and scalable at low cost. Regulated stablecoins allow for an ecosystem agnostic to crypto price movements. And policymakers are increasingly open to helping legitimate use cases flourish. Now is the right time for companies to start thinking about adapting this more modern infrastructure to suit their needs while using it to empower consumers to form communities around their brands.

Another key point to remember is that everyone wants a better product. As with web2, the more technical jargon that can be abstracted away, the better the user experience. Web3 doesn’t have to be complicated, it’s pretty intuitive when you think of the web3 wallet as an inventory of assets. The wallet includes payment methods and credentials like club memberships and friend lists. Besides, enhancing the user experience is something large companies have proven to be good at over time.

D2: What is the biggest misconception about tax obligations for corporations that accept Cryptocurrencies?

Jason: Many taxpayers are surprised to learn that if they hold a token with a U.S. dollar value, they will have a taxable event when they dispose of the token, even if they’re using it to buy something else.

At the same time, it’s possible to structure incentives, tokenized fan clubs, and other marketing items to avoid capital gains taxes on transfers. Instead, companies engaging in blockchain-based payments can limit their activities to stablecoins if they don’t want exposure to token price fluctuations.

In short, because web3 has such a broad reach, it’s hard to predict tax treatments. It pays to have a trusted advisor to help you think through any potential tax consequences.

D2: Regulation of the Crypto industry is developing. Depending on the perspective, the vision can vary. Where do you see the United States landing on a government-wide strategy? Should corporate America be worried?

Jason: Web3 has limitless potential uses. It’s impossible to predict policymakers’ reactions to all of those uses. That shouldn’t deter corporate America from using blockchain technology. It helps increase operational efficiencies and provide a better customer experience with the help of qualified legal professionals.

If you’d like to learn more about Mr. Schwartz, follow him on LinkedIn or Twitter, or view his publications here.

You may contact Jason at Jason.Schwartz@friedfrank.com.






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