Re: Questions about ICO participation as a United States citizen

I've been doing some research on this topic and have not found the exact answer.

Basically, I was wondering what are the legal/tax implications when participating in an ICO as an American citizen?

Let's say a US citizen uses a VPN to partake in an ICO. They double their money and then sell. They decide to cash out to fiat (USD) legally and pay the 40% short-term tax on that trade profit (as well as report it) to the IRS.

I heard that ICO providers prevent US citizens from participating to protect themselves legally from the American Government if a scam were to occur. Is this true? Any advice/input would be greatly appreciated. I basically come to realize this is a gray area.

Caveat emptor. In the SEC's recent decision, they indeed said that ERC tokens can constitute securities, so I imagine that some ICO administrators are moving to restrict participation from US citizens. In the exchange world, enforcing such by IP restriction is usually seen as "good enough."

Between that and the fact that it's still pretty much the wild west (the SEC also chose not pursue any charges against anyone for anything), I'd say that your chances of recovery in a scam are low. So, buyer beware. There's money to be made in the ICO craze for sure, but there are many over-inflated promises and hyped expectations as well.

Thanks for the feedback! Let's say the SEC does enforce regulation that makes it illegal for US citizens to participate in ICOs. What about the US citizens who participated before that regulation? Would there likely be repercussions?

I'm no lawyer (although I do work in the field of legal compliance and I deal with federal regulations often), so take what I say with a grain of salt. I highly doubt that the SEC would pass regulations that made it illegal to participate in ICOs outright, but it may create a regulatory framework so complex that it makes sense for ICO administrators to ban US citizens/residents from participation.

If they did make it illegal for US citizens to participate at all, I very much doubt there would be any retroactive repercussions. I think this is the case especially because of their recent decision, which basically said to US investors, "We're being pretty hands-off. Be careful."

Thank you so much for the help! I've been trying to wrap my head around cryptocurrencies in regards to legality and taxes. I think from now on I will avoid ICOs as it is such a gray area I'm not comfortable being in. Thanks again! You were very helpful.