Welcome back to Inside Basis, our monthly newsletter for all things crypto accounting and tax! Around this time of year, tax accountants go into hibernation and only emerge once all the returns have been filed (or more likely, extended). We’re happy to report that we met our filing deadlines, and we can finally shift focus to more creative projects like writing articles, creating videos and speaking at conferences! Between March & April, we’ve also had the opportunity to work on fascinating projects, from dissecting taxes on restricted token awards to collateralized NFT lending. Get ready for our mega-update!

Hash Basis Beat

What’s new in the Hash Basis universe?

Our First Tax Season in the Books 🧮

We successfully finished our first tax season at Hash Basis! We filed 11 business returns, the most we’ve ever done in the span of two months. From helping our customers with the Delaware annual franchise tax to R&D tax credit interviews, we went deep in the weeds of the taxes - and we loved it! There’s something so satisfying about checking off the boxes for sending 1099s, filing BOI reports and filing an 1120. 😌

Our learnings this first season were immense and included concepts like Section 174 expense amortization and how to work with the idiosyncrasies of Intuit Proconnect, our tax software. We spent hours on the phone with Proconnect reps figuring out niche problems (hint: just input -1 to solve most issues), and many more hours studying prior year returns. Be on the lookout for a more detailed review of our learnings for next year.

Catch us on the Latest Taxbit Webinar! 👩🏻‍💻

We’ll be chatting with the folks at Taxbit about all things crypto accounting next Tuesday, April 30 at 1 pm eastern! We’ll dig into what matters when setting up crypto accounting systems for the first time (i.e. principal marketing pricing, data quality/ingestion, regulatory concerns, fair value accounting, etc). For some “pre-webinar” homework, we recommend reading this article Mackenzie published on this exact topic! Choosing a subledger is a make-or-break moment for a company’s accounting team, so it’s best to do your homework before selecting one.

Register for the Taxbit webinar here.

Introducing Hash Basis On-Demand “Office Hours” 👗

Throughout the past year of operations, we noticed a market segment of customers that need quick advice on a specific topic. For example, how to structure their chart of accounts for crypto activity, how to comply with 6050I requirements on Form 8300, how to book a certain trade, etc. These one-off questions are often time sensitive and are too small for a full-blown engagement (the company/individual usually already has an accountant - they just need some outside counseling).

Enter Hash Basis Office Hours! Anyone can book 30 min to 1 hour with Mackenzie here to discuss their crypto accounting and tax questions. This service is recommended when only 1-2 sessions are needed (if it’s a more complicated fact pattern, we do recommend setting up a more in-depth arrangement). Feel free to share with any friends or colleagues that you think would be a good fit!

The Tea on Current Crypto Events

Headliner news to pay attention to for crypto accounting & finance professionals

IRS Issues Draft 1099-DA 👀

It’s the moment we’ve all been waiting for!! On April 18, the IRS released the draft version of 1099-DA, “Digital Asset Proceeds From Broker Transactions.” Upon first glance, the form is a literal transcription of the proposed regs we all read (and got miffed about) a few months ago. Some of the information required to be reported includes:

• Proceeds
• Cost Basis
• Date and time acquired (+ date and time sold)
• Character of gain/loss
• Transaction hash
• Transfer in addresses and transaction hashes

What strikes us is how voluminous these forms will be. If a user on an exchange has hundreds of trades, the length of their 1099-DAs will be staggering. Per this Journal of Accountancy article, “…an IRS official said last year that the Service estimated it would receive 8 billion Form 1099-DA information returns.” Talk about the Department of Paperwork!

Although the regs could change and the final 1099-DA could look very different from the proposed one, it’s still an onerous information request for digital asset middlemen.

Stripe is Bringing Back Crypto Payments 🎉

Stripe is entering the crypto game once more! They pulled support for crypto back in the winter of 2018, but it appears the crypto markets are heating up again and Stripe wants their piece of the pie. Stripe expects to support USDC on Ethereum, Solana and Polygon later this summer. DeFi summer part two?!

MicroStrategy Isn’t Early Adopting Fair Value Accounting? 🤷🏻‍♀️

In a surprising decision, Microstrategy is holding off on early adopting ASU 2023-08. Instead of switching to the fair value model, the company is treading lightly because adoption could mean a significant new tax: a 15% CAMT (corporate alternative minimum tax). CAMT kicks in when a corporation has GAAP income that exceeds $1 billion for three consecutive years - and with the rising prices of Bitcoin in 2023, this could significantly increase Microstrategy’s bottom line. It’s an interesting plot twist coming from the posterchild for Bitcoin hodling, especially when they fought hard for the new ASU to be released.

Basis Bytes

Practical tips & tricks for all the crypto accountants out there

How to Read CELO ReleaseGold() Contracts 🏅

One fascinating use case for smart contracts is for token awards granted to employees and contractors. Similar to restricted stock awards (RSAs), restricted token awards (RTAs) are a form of additional compensation and typically include some vesting component related to service tenure. For example, when an employee joins a startup, they may receive a grant of 10,000 CELO tokens that have a four year vesting schedule and one year cliff (25% of tokens vest on the cliff date).

Since these numbers are static parameters, this makes for the perfect type of smart contact. The employer deposits tokens into the contract, the employee works for X number of years and the tokens are automatically available for withdrawal upon vesting. (Note: contrast this with RTUs or restricted tokens units, which are a promise to pay a specified number of token units in the future. The employee doesn’t have them today).

Enter the ReleaseGold() contract, which is the pre-built vesting contact available on the CELO blockchain. Per the documentation, the contract owner can set the following parameters:

• Amount released per period
• Number of periods
• Cliff date
• Vesting start date
• Contract owner (address that funds the contract)
• Contract beneficiary (address that can withdraw the vested funds)
  

The tokens - even the unvested ones - can also be staked through the lockedgoldproxy() contract and earn staking rewards. However, if the employee leaves before the end date, they only receive a pro-rata portion of the rewards (any unvested tokens are returned to the contract owner).

The CELO blockchain explorers are notorious for being undecipherable, but luckily we discovered a workaround (shout out to our friends at cLabs!). For deployed contracts, it’s impossible to view the contract parameters on the explorer (even decompiling the bytecode doesn’t work), so we have to resort to other means. You can access the data via the terminal or you could go to this nifty Vercel app.

If you pop in a deployed contract address, you can view all the details clearly and reconstruct the vesting schedule.

This website is key to managing the tax obligations associated with RTAs on CELO - without it, vesting schedules (and therefore taxable income and payroll taxes) would be awry. Note: no discussion of RTUs and RTAs would be complete without mention of the 83(b) tax election - we’ll be covering this more in our next article, but just know that you can take the 83(b) on RTAs but not RTUs!

With that, thank you for reading! We appreciate every reader, customer, colleague and friend in the space. On a random note, Mackenzie is doing her yoga teacher training program right now, so if you want to chat about yoga with her, send her a note!

Sincerely,

The Hash Basis Team