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Hey, Crypto Tax Pros!

Welcome to another edition of Chain Reactions, where we analyze only the most relevant developments in cryptocurrency taxation and regulation.

And we do it in 5 minutes or less (because we all need that extra coffee break).

This week, we’re covering:

🏛️ Coinbase’s legal battle with the SEC and FDIC for regulatory transparency
⚖️ SCOTUS ruling curtails SEC’s enforcement powers and its broader implications
📈 VanEck’s Solana ETF filing and what it means for institutional interest in crypto

Let’s dive in!

SEC is Dealt One-Two Punch

Coinbase takes on the SEC and FDIC, while SCOTUS delivers a landmark ruling limiting the SEC’s enforcement powers.

The cryptocurrency world is buzzing with two major blows to the SEC. Coinbase has filed lawsuits against the SEC and FDIC, while the Supreme Court has delivered a significant ruling in SEC v. Jarkesy. Let’s dive into these critical updates.

Coinbase Sues SEC and FDIC for Regulatory Transparency

Coinbase, the largest U.S. cryptocurrency exchange, has sued the SEC and FDIC, alleging they failed to comply with Freedom of Information Act (FOIA) requests.

Coinbase’s lawsuits, filed in the U.S. District Court for the District of Columbia, seek documents they believe will reveal a coordinated effort by these regulators to restrict the crypto industry’s access to the federal banking system, drawing parallels to the Obama-era “Operation Choke Point.”

Here are the key arguments in Coinbase’s case:

FOIA Requests and Noncompliance:

Coinbase sought information on the SEC’s stance on Ethereum’s transition to proof-of-stake and other closed investigations involving digital assets. The SEC and FDIC have denied these requests, citing exemptions that protect ongoing enforcement efforts and sensitive communications.

Allegations of Regulatory Overreach:

Coinbase accuses the SEC and FDIC of using their regulatory powers to hinder the crypto industry by pressuring banks to cut off services to crypto firms. According to Coinbase, this is an unlawful scheme to exclude digital asset firms from essential banking services, threatening the industry’s viability.

Historical Context and Broader Implications:

This legal action is part of Coinbase’s ongoing conflict with U.S. regulators, including a previous lawsuit against the SEC for clearer regulatory guidelines for the crypto industry. The outcome could significantly impact the regulatory landscape for cryptocurrencies in the U.S., setting precedents for how digital assets are treated under federal law.

SCOTUS Ruling Limits SEC’s Enforcement Powers

The Supreme Court delivered a major victory against administrative overreach in its ruling on SEC v. Jarkesy, curtailing the SEC’s enforcement powers.

The court ruled 6-3 that the SEC’s use of in-house administrative law judges (ALJs) to impose civil penalties violated the Seventh Amendment, which guarantees the right to a jury trial.

Supreme Court Ruling:

The Supreme Court Ruling addressed two critical points of the law:

Seventh Amendment Violation: The court ruled that when the SEC seeks civil penalties for securities fraud, defendants are entitled to a jury trial. This decision is based on the premise that such cases are akin to common law fraud, which traditionally requires a jury.
Separation of Powers: The ruling criticized the SEC’s internal tribunals for consolidating prosecutorial, judicial, and adjudicative functions within the executive branch, undermining the impartiality and fairness guaranteed by a jury trial.

Implications of the Ruling:

So, what does this ruling mean for the SEC?

Limitation on SEC’s Enforcement Powers: This decision significantly curtails the SEC’s ability to use its in-house judges, potentially shifting many cases to federal courts and burdening the judiciary.
Broader Impact on Federal Agencies: The ruling may affect other federal agencies using similar administrative proceedings, leading to a reevaluation of the administrative state.

What Happens Next?

Coinbase’s lawsuits and the SCOTUS ruling mark pivotal moments in the crypto regulatory landscape.

The outcomes of these legal battles will set important precedents and could lead to significant changes in how digital assets are regulated and how federal agencies conduct their enforcement activities.

These developments underscore the ongoing tension between regulatory enforcement and constitutional protections, highlighting the evolving dynamics of administrative law in the United States.

Treasury Trove of Resources

Hand-picked resources to help you dive deeper into our main story, learn crypto without confusion, and master crypto tax:

a16z: Death, Taxes, and AI: How Generative AI Will Change Accounting Explore the transformative impact of generative AI on accounting workflows, from data collection to client service, and how it can address the growing talent gap in the industry.
CoinShares: Digital Asset Fund Flows Stay informed about the latest trends in digital asset investment, with insights on significant outflows and emerging opportunities in the altcoin market.
Coinbase: The State of Crypto: The Fortune 500 Moving Onchain Learn how major corporations are adopting blockchain technology, driving innovation, and what this means for the future of finance and business.
Crypto Tax Outsourcing: We constantly get calls from other CPA firms that don’t have the capacity or desire to prepare their clients’ crypto taxes but still want to help by sending them to an experienced crypto tax professional. If this sounds like you, we’d love to chat about how we can help!

Feel free to schedule a free strategic partner consultation Zoom call on our calendar HERE.

Crypto Tax Pro Tip Of The Week

Here’s my favorite tip about avoiding penalties for unpaid crypto taxes.

It’s from my recent LinkedIn post on the topic:

Here’s a quick breakdown:

Using the IRS’s First-Time Penalty Abatement (FTA) Program

The FTA program applies to penalties such as the Failure-to-File Penalty and the Failure-to-Pay Penalty, which are commonly incurred by taxpayers.
To qualify for the FTA, ensure the taxpayer has a clean compliance history for the past three years, has filed all required returns or valid extensions, and has paid or arranged to pay any due taxes.
Taxpayers can request FTA by contacting the IRS directly by phone, submitting a written request, or filing Form 843, “Claim for Refund and Request for Abatement.” If denied, consider appealing the decision within 30 days.

Hope this helps!

Curated Crypto News

Want to stay on the cutting edge?

Here's what else is happening in crypto tax, policy, and markets that you should know about:

Want to stay on the cutting edge?

Here's what else is happening in crypto you should know about:

🟠 Gaetz Introduces Bill to Pay Federal Taxes in Bitcoin: According to The Hill, Representative Matt Gaetz has introduced a bill that would allow Americans to pay their federal taxes using Bitcoin. Gaetz cited his visit to El Salvador, where Bitcoin is legal tender, as inspiration. This is a big deal because it signals increasing governmental acceptance of cryptocurrency as a legitimate form of payment. Personally, we think this means we might see more mainstream adoption of Bitcoin for various types of payments in the near future.

🗄️ VanEck Files for Solana ETF: According to CoinDesk, VanEck has filed for a Solana ETF, causing the price of SOL to rise by 8%. This filing is the first Solana ETF registration in the U.S., coming shortly after a similar product was filed in Canada. This is a big deal because it indicates growing institutional interest in Solana and its potential as a major player in the crypto space. Personally, we think this means Solana could see significant investment inflows, leading to further price appreciation and network growth.

🇺🇸 Crypto Giants Notch Wins in US Politics: According to CoinDesk, major crypto firms have achieved significant political wins in their efforts to influence US legislation, despite not explicitly mentioning crypto. The industry has deployed a $169 million fund, securing over 20 congressional primary wins, including high-profile races in New York and California. This is a big deal because it shows the strategic and nuanced approach crypto companies are taking to shape favorable regulations. Personally, we think this means we can expect more tailored and supportive regulatory environments for crypto businesses in the future.