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The U.S. Department of Labor (DOL) last month issued Compliance Assistance Release No. 2022-1 - 401(k) Plan Investments in Cryptocurrencies (the Release) in which it strongly cautions ERISA plan fiduciaries to use extreme care before considering the inclusion of a cryptocurrency or other related option as a choice on a self-directed 401(k) plans menu of investment choices. In the Release, the Department noted that it had become aware that certain firms were marketing cryptocurrency-type investments as potential options for 401(k) plans.

The DOL reiterated that under ERISA, plan fiduciaries must act solely in the financial interests of plan participants and comply with ERISAs demanding standard of care, and that a breach of these standards could result in personal liability for plan losses. Regarding participant-directed 401(k) plans, the DOL further noted that fiduciaries responsible for the investment options have an ongoing duty to ensure the prudence of such options.

The DOL indicated that, at this current stage in the history of digital assets, it has serious reservations regarding the prudence of exposing 401(k) plan participants to cryptocurrencies or products whose value is tied to cryptocurrencies. According to the DOL, these investment options can pose significant risks (including those associated with fraud, theft and loss) and challenges for participant-directed retirement plans for the following reasons:

Importantly, the DOL not only sets forth the foregoing concerns, but goes on to provide that, based on these and related considerations, it expects to engage in an investigative program focusing on participant-directed plans that offer on their investment menus cryptocurrency and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments.

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DOL Warns Sponsors against Permitting Cryptocurrency-Related Investments on 401(k) Plan Investment Menus - JD Supra

The below article is a press release:

11 April 2022, 10 am BST: Cameroon, the Democratic Republic of the Congo (the DRC) and the Republic of the Congo have today announced their intention to adopt cryptocurrency and blockchain-based solutions to drive future economic progress. Layer one proof-of-stake blockchain, The Open Network (TON) is the leading contender to become the blockchain to power this. The DRC has also confirmed that it is considering a new national stablecoin, built on the TON blockchain.

TON has been engaging with all three countries independently for some time and has taken the lead to deliver cryptocurrency and blockchain solutions for each nation. These countries will each undertake a phased transition to adopting cryptocurrency as a central pillar of their economic structures.

The future use of cryptocurrency will ensure that both banked and unbanked individuals will be better able to engage in the economy. This in turn will act as a powerful economic stimulus. In the DRC, for instance, as of 2019 12.4 million people had an account with a financial institution, whereas over 40 million have access to mobile phones or other internet-enabled devices, demonstrating the significant potential for cryptocurrency.

The TON blockchain was designed to process millions of transactions within seconds. Its ultra-affordable, user-friendly and fully scalable. With TON being a decentralized platform, it will provide control and certainty for citizens, removing the possibility of interference. In addition, TON anticipates that applications will be uniquely integrated with the Telegram app to provide users with a seamless, accessible experience.

Speaking about the potential partnership, the Congolese Minister for Posts, Telecommunications and the Digital Economy, Lon Juste Ibombo, commented: The Republic of the Congo has been on this path for a number of years, having encouraged and witnessed the widespread adoption of mobile payments across the country. This is the next step in that journey and we believe that TON is the right partner to facilitate this. This will be an invaluable, practical instrument for the growth and creation of wealth, both for the government and our people alike.

Minette Libom Li Likeng, the Minister of Posts and Telecommunications for Cameroon, said: " The partnership with TON can play a fundamental role in the digital ecosystem of Cameroon for boosting the payment solutions and financial inclusion via CAMPOST, the public postal operator."

Steven Yun, Founding Member of TON Foundation, remarked: There is an unbounded potential for these three countries to benefit from the adoption of cryptocurrency with our blockchain as the foundation. Its fantastic that TONs value is recognized, both in terms of its technology and utility. Were excited to embark on this journey to building strong and long-lasting partnerships.

This announcement follows the adoption of Bitcoin by El Salvador as legal tender, and it is anticipated that new stablecoins will be developed for Cameroon and the Republic of the Congo, in addition to the DRC, to provide confidence and assurance to citizens.

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Cameroon, DRC and Republic of the Congo to adopt cryptocurrency into their economic structures - BanklessTimes

Cryptocurrency holders often want to put their assets into an entity for a host of reasons, such as asset protection, arranging negotiated management rights and exit planning. This post discusses basic federal income tax issues related to holding cryptocurrency inside a partnership (meaning any entity taxed under Subchapter K* of the Internal Revenue Code; the Code).

The IRS treats cryptocurrency as a form of property, and generally the Code does not immediately tax property contributions to partnerships. However, there are important exceptions to the nonrecognition rule, the most prominent of which is Code Section 721(b). The foregoing exception states that the general nonrecognition rule does not apply for a transfer to a partnership that would be an investment company under Code Section 351.

The Treasury Regulations provide that a transfer of property is treated as a transfer to a partnership investment company if two conditions apply. First, the transfer results in diversification of the transferors interests, and second, immediately after its receipt of property, more than 80% of the value of the partnerships assets (excluding cash and nonconvertible debt obligations from consideration): (i) are held for investment purposes, and (ii) consist of readily marketable stocks or securities. Diversification requires each investor to transfer different appreciated assets to the same partnership (contributing identical assets obviously provides no diversification). With respect to the ultimate composition of contributed assets, a portfolio is considered diversified when not more than 25% of the total assets of the partnership are invested in the stock or securities of any one issuer, and not more than 50% of the value of total assets is invested in the stock and securities of five or fewer issuers. Stated differently and simplistically, the diversification rule is one of the Codes toll charges on attempts to use Subchapter K to create mutual fund type investments on a tax deferred basis.

If a cryptocurrency is classified as a commodity under the Code, it may avoid the partnership investment company rules, because commodities are not included in the definition of stock or securities on which such rules rely. However, while unlikely, if a cryptocurrency is considered to be a form of financial contract, obligation to pay, or money (under the Code, money has classically been interpreted as the physical, electronic, or book representation of currency issued by the U.S. government), then the partnership investment company rules could be applicable. Cryptocurrency holders would be wise to review any new guidance discussing cryptocurrency classification. Also, as new guidance is released the partnership rules must be reexamined to determine if any assumptions on treatment are still accurate. A partnership agreement, for example, may need to be amended to account for new guidance and memorialize any necessary changes.

Cryptocurrency may have a tax basis different from its value. That raises several partnership tax concerns. First, contributors of appreciated property typically have to account for the built-in gain existing at the time of contribution whenever the partnership disposes of such an asset. Second, if the partnership attempts to distribute appreciated cryptocurrency to a non-contributing partner, the Codes mixing bowl rules may apply. The mixing bowl rules attempt to prevent both (i) shifting pre-contribution gain to a non-contributing partner and (ii) exchanging non-like kind property on a tax-free basis.

In the case of partnership distributions, the Code treats the distribution of marketable securities as money instead of property. When partnerships distribute money to partners in excess of the partners tax bases in the partnership, gain results (this does not apply if (a) property is returned to the contributor; (b) the partnership is an investment company; or (c) the partner is an eligible partner, which exceptions are beyond the scope of this post). Thus, cryptocurrency classification again becomes important. If the IRS issues future guidance indicating cryptocurrencies are monies, or courts issue rulings finding the same, partnerships that hold such assets will need to evaluate their distribution policy and partnership agreements.

Even more esoteric partnership accounting issues arise when considering reverse section 704(c) allocations for partnerships heavy on cryptocurrency assets. Reverse section 704(c) allocations arise when a partnership creates a book-tax difference by booking up or down its assets (e.g. such as when a new partner joins a partnership). The Treasury Regulations have special reverse section 704(c) rules for securities partnerships. A securities partnership is one that is not registered under the Investment Company Act of 1940 and (i) makes book allocations relative to book capital accounts, excepting reasonable special allocations for management services; (ii) on each book-up/down date, the partnership holds qualified financial assets that comprise at least 90% of the fair market value of the partnerships non-cash assets; and (iii) the partnership reasonably expects, as of the end of the first tax year in which the special rules are adopted, to revalue (book-up or down) at least annually. The special rules essentially allow securities partnerships to aggregate gains and losses from qualified financial assets using any reasonable Code Section 704(c) method. For these purposes, qualified financial assets are actively traded personal property. Certain cryptocurrencies may well be considered qualified financial assets, so the securities partnership rules may come into play. In such cases, partners should carefully review their partnership agreements to ensure they do not receive unwelcome allocation surprises.

*Partnership tax rules are very complex. This post is neither exhaustive nor intended to provide a detailed discussion of how Subchapter K applies to cryptocurrency investors. Specific questions should be addressed based on the individual facts and circumstances of the transaction and taxpayers involved.

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Thoughts on Cryptocurrency and Tax Partnerships | Gray Reed - JDSupra - JD Supra

As Keene resident and libertarian activist Ian Freeman awaits trial on federal charges related to his bitcoin-exchange business, two of his alleged co-conspirators have signaled they will enter guilty pleas.

Renee and Andrew Spinella, both of Derry, are scheduled for change-of-plea hearings Tuesday in U.S. District Court in Concord. Their shift from not-guilty pleas to pleading guilty would mark the first time any of the six alleged co-conspirators have admitted wrongdoing.

Freeman, Colleen Fordham of Alstead, Aria DiMezzo of Keene and a Keene man who legally changed his name from Richard Paul to Nobody have all pleaded not guilty to all charges.

Prosecutors claim Freeman and his alleged co-conspirators violated federal law by running an unlicensed virtual currency-exchange business that handled more than $10 million in transactions over several years.

According to the government, Freeman and other co-defendants used personal bank accounts and accounts in the names of purported religious entities like the Shire Free Church, the Crypto Church of NH, the Church of the Invisible Hand and the Reformed Satanic Church to conceal the nature of their business while directing customers to falsely report that they were donating to churches or buying rare coins, not purchasing cryptocurrency.

The government arrested the six in March 2021. The FBI conducted several searches in Keene one day that month, including at 73-75 Leverett St. and at two properties on Route 101.

Those properties are linked to the libertarian activist group known locally as Free Keene, which has ties to some of the defendants. The Route 101 searches were at 661 Marlboro Road, at a business called Bitcoin Embassy N.H., and 659 Marlboro Road, which is owned by Shire Free Church Holdings LLC. The FBI also conducted an operation at a local convenience store, with an employee at the time telling The Sentinel agents removed a Bitcoin ATM.

Court records indicate the defendants trial is scheduled to begin Nov. 1.

All six alleged co-conspirators were charged with conspiracy to operate an unlicensed money-transmitting business, and all but DiMezzo also face a charge of conspiracy to commit wire fraud.

Renee Spinella additionally faces two charges of wire fraud and Andrew Spinella faces a single additional charge of wire fraud. Court documents do not indicate what charge or charges they are expected to plead guilty to.

Freeman also faces charges of operation of an unlicensed money-transmitting business, continuing financial-crimes enterprise, money laundering and six counts of wire fraud. The continuing financial-crimes enterprise charge carries a 10-year mandatory minimum sentence.

Unfortunately the way the federal government works is they do their best to intimidate people by stacking on as many charges as possible, Freeman said Saturday.

Freeman said he has not been allowed to talk to his co-defendants, but has heard that the prosecution threatened the Spinellas with additional charges to force them into a plea deal. The Sentinel has not been able to confirm this. Court documents do not indicate any additional charges. Renee Spinella was not immediately reachable by phone. Neither Andrew Spinella nor his attorney were immediately reachable Saturday for a request for comment.

Freeman said he does not expect that the Spinellas will cooperate with the government, despite the scheduled guilty plea.

Nobody here did anything wrong. These are victimless so-called crimes, he said. I expect they will not be cooperating with the state because we all believe the state is evil.

Assistant U.S. Attorney Georgiana L. MacDonald has previously alleged that hordes of cybercriminals bought virtual currency from Freeman in an effort to avoid detection by banks and government regulators.

The government also claims in court documents Freeman allowed an undercover agent to exchange around $20,000 in cash for bitcoin after the agent told him he was dealing drugs. Freemans lawyer, Mark Sisti, has previously told The Sentinel he doesnt know where the governments claim about an undercover agent is coming from. He said he has seen evidence of Freeman refusing to deal with criminals.

DiMezzo, also reached by phone Saturday, said the Spinellas have to do what is best for themselves even if that means entering a plea deal with the government.

In the libertarian philosophy as long as they are making the decision that is best for them the world is best served, DiMezzo said.

While she said she believes a jury will find no evidence of the alleged crimes, certainly, if they agree to be star witnesses to the prosecutors, that certainly will have an effect on other peoples cases.

But a guilty plea is not evidence of guilt, DiMezzo argued, claiming, as Freeman did, that the federal government stacks charges against defendants to bully them into pleas.

Its hard to accept a guilty plea as an actual confession of guilt in the modern court system, she said. Whether theyre guilty or not, [defendants] accept the deal to make the bigger threat go away.

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Two expected to plead guilty in cryptocurrency case - Concord Monitor