Use Cases
Agenda • Introductions • Learning Programs • Use Cases • Takeaways • What’s Next?
Audit & Assurance Practice Areas Tax Financial Advisors Supply Chain Financial Services Healthcare Industry Nonprofits Insurance
Industry Specific Training Practice Area Specific Training • Insurance (Aug 2019) • Financial Advisors (July 2019) • Supply Chain (Fall 2018) • Tax (Fall 2018) • Public Sector/Gov’t (Oct 2019) • Forensics (shorter webcasts • Financial Services (June 2019) • Audit and Assurance (Fall 2018) • Real Estate (Oct 2019) in Q3/Q4 2019) • Healthcare (June 2019) • Accounting (Nov/Dec 2019) • Advancing Food Safety with • Not-for-Profit (June 2019) Blockchain (Sept 2019)
Financial Services Supply Chain Healthcare Rise of Stablecoins to promote wider cryptoasset Tailor made to use blockchain due to large number Records start at birth but struggle to follow the adoption; fiat, commodity based, etc. of counterparties and compliance issues - comes individual throughout their life. back to the two T's of blockchain; traceability and transparency . Growing custodian services able to cater to Can be used for operational efficiencies, cost Beyond improving drug supply chain – better data institutional market participants. savings, conflict minerals, etc. protection and democratizing healthcare data. JPMorgan led Interbank Information Network IBM, Walmart will push blockchain adoption by Centers for Medicare and Medicaid Services (CMS) have (IIN); financial services industry biggest blockchain suppliers and firms of all sizes. several initiatives focused on interoperability and project; will lower costs and speed up cross-border democratization of healthcare data – perfect for payments ; includes Deutsche Bank and others. blockchain technology. Mastercard and other payment processors using Physical goods as well as services, intellectual Major focus include managing privacy risks and adhering blockchain based platforms (R3, etc). property, energy, etc. to privacy regulation ( HIPAA, GDPR ) while linking on- chain transactions to off-chain data. Emergence of major players in cryptoasset and Is addressing the $44 billion ad fraud (Juniper Adoption in healthcare historically slower than other Blockchain ecosystems, including Facebook, Apple, Research) industries but ramping up with 55% of all healthcare Amazon; eventually offer financial services? applications deployed on blockchain for commercial purposes by 2025 according to IDC report. Further financial markets instruments (ETF's, Can leverage existing technology such as RFID and derivatives, etc), either launched or pending. EDI , as well as integrate with IoT solutions
Questions?
Technical Update: Regulatory Advancements Amy Wang (amy.wang@aicpa-cima.com) Rob Quaranta (ron@wsba.co)
Today’s Agenda Status of Crypto Assets in Global Markets AICPA Comment Letters Trends & Legal Risks Q&A Resources Glossary
Status of Crypto Assets in Global Markets
A distributed ledger built on a data structure known as “blocks” Blockchain is the technology What problems does it solve? platform underlying bitcoin. What industries are adopting it?
Cryptoasset Enforcement & Decisions Enforcement Actions and Other Issues • TurnKey Jet • Pocket Full of Quarters • Silk Road • Mt. Gox. • United States v. Coinbase (IRS Summons • SEC v. Bitqyck, Inc., et al. • ICO Rating cease & desist • SEC v. Kik Interactive Inc. * Regulatory agencies have begun to publicly • Gladius Network LLC C&D comment on “acceptable” token usage. • Floyd Mayweather, Jr. C&D No-Action Relief * 26 SEC enforcement actions since last symposium
Cryptocurrency in the Markets May 2018 September 2019 • Over 1,500 cryptocurrencies across more than • Over 2,700 cryptocurrencies across more than 11,000 markets 20,000 markets Top 5 Top 5 (as of Sept 17, 2019) • Bitcoin (BTC) – $9,233 • Bitcoin (BTC) – $10,247 • Ethereum (ETH) – $577.18 • Ethereum (ETH) – $200.85 • Ripple (XRP) – $0.59 • Ripple (XRP) – $0.27 • Bitcoin Cash (BCH) – $995.44 • Bitcoin Cash (BCH) – $314.86 • EOS (EOS) – $10.95 • Litecoin (LTC) – $ 73.90
A secure digital wallet used to store private • and public keys with various blockchains. Also used to send/receive various cryptocurrencies. Private key is a secure digital code known • only to you and your wallet. Public key is a digital code connected to a • certain amount of cryptocurrency. • • Bitcoin Wallets Q2 Ethereum Wallets Q2 2018 > 25 million 2018 > 39 million • • Bitcoin Wallets Q2 Ethereum Wallets Q2 2019 > 40 million 2019 > 75 million Cryptocurrency Wallet
Notice 2014-21 Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Tax Basics When received, fair market value (FMV) at time of 01 receipt determines income or amount realized. 02 Basis based generally on value at time of receipt. FMV may be determined by value on 03 established exchange. Use of cryptocurrency to purchase/pay is 04 a disposition giving rise to gain/(loss).
AICPA Comment Letters
1. Expenses of Obtaining Virtual Currency 7. Virtual Currency Held and Used by a Dealer 2. Acceptable Valuation and Documentation 8. Traders and Dealers of Virtual Currency 3. Computation of Gains and Losses 9. Treatment under Section 1031 4. Need for a De Minimis Election 10.Treatment under Section 453 5. Valuation for Charitable Contribution Purposes 11.Holding Virtual Currency in a Retirement Account 6. Virtual Currency Events 12.Foreign Reporting Requirements for Virtual Currency
Suggested FAQ: Q-1: Are the costs of acquiring virtual currency through mining or similar activities expensed as incurred, similar to 1. Expenses of costs incurred for providing other service activities? Obtaining A-1: Yes. Virtual currency mining or similar activities Virtual produce virtual currency treated as ordinary income in the Currency year it is mined and the expenses of mining are deducted as incurred. The matching of income and expenses are consistent with other service activities. Virtual currency mining equipment is capitalized and depreciated like any other property whose useful life extends beyond one year.
Suggested FAQ: Q-2: Are taxpayers allowed to use an average of different exchanges? A-2: Yes. Taxpayers are allowed to use an average of different exchanges as long as they are consistent in how they calculate the valuation. 2. Acceptable Q-3: May taxpayers use the average rate for the day to calculate the Valuation and exchange rate? Documentation A-3: Yes. Taxpayers may use the average rate for the day to calculate the exchange rate, provided they are consistent in how they make this determination for every virtual currency transaction. Q-4: May taxpayers rely on virtual currency tax software as a reasonable and consistent method for determining fair value? A-4: Yes. Taxpayers may rely on virtual currency tax software as a reasonable and consistent method for determining fair value if the software is consistently using aggregated price data.
Suggested FAQ: Q-5: Are taxpayers allowed to have a combination of transactions using time stamps or dates (without a time stamp) for one virtual currency, or among a group of virtual currencies, and still have this method considered as consistently applied? A-5: Yes. Taxpayers should use time stamps whenever possible and transactions with dates should only have a reasonable and consistent method applied, as outlined in this section. A virtual currency, such as Bitcoin, meets this test in both methods because a combination of time stamps and dates are used.
Suggested FAQ: Q-6: May taxpayers use a different method for determining fair value for transactions in each of their virtual currency wallets and exchanges? A-6: Taxpayers should apply the same reasonable and consistent method to all the transactions on a per virtual currency wallet or exchange basis. Taxpayers should use time stamps whenever they are available. Otherwise, the use of a reasonable and consistent method should apply to the transactions. Taxpayers may have one method applied to one wallet and another method applied to another exchange when determining the fair value of all the Bitcoin transactions. Taxpayers using this combination of methods can meet the overall test for reasonable and consistent determination of fair value.
Suggested FAQ: Q-7: May taxpayers use a virtual currency price index that aggregates the prices from major exchanges, such as the Coindesk Bitcoin Index (XBP)? A-7: Taxpayers may use a price index provided they are consistent in applying prices for every virtual currency transaction.
Gain/loss calculation ✓ capital vs. ordinary Like-kind exchanges ✓ wash sales, straddles, ✓ Not an issue post TCJA etc. 3. Computation of Gains and Losses Suggested FAQ: Q-8: May a taxpayer choose either the specific identification method or the FIFO method as the accounting method for computing capital gains and losses? A-8: Yes. The taxpayer may choose either specific identification or FIFO as long as the method is consistently applied from year to year.
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