No, it is just part of the tax bracket as a whole. If you are making $418,401+, you will be taxed at the highest rate (currently 39.6%). There are several different tiers of income that have their corresponding tax percentage. If you research "2017-2018 tax brackets", there will be a spreadsheet that details everything.

This is not legal advice whatsoever. The reason why ICO issuers do this is to exercise extreme caution in fear of future regulations by the United States that currently aren't in place. They are showing legal due diligence to make sure that they are not in violation of any potential ruling. KYC and AML requirements became rampant after the SEC's DAO report. The Howey Test is a good place to start but there are so many factors that can deem a ICO/crypto a security. Even if it's token is no where near considered a security, how it's sold, marketed, amongst other things could still define it as one. In my opinion, it will most likely come down to a case to case basis in determining this.

To my knowledge, it does not matter the location. The SEC has a global reach and power. If American citrizens are allowed to participate in that ICO, it automatically opens up that ICO issuer to the SEC. If Americans were unable to participate by the ICO issuer but do so anyways, the company has an argument against the SEC jurisdiction.

What about the legalize and TOS outline in the whitepaper? Wouldn't you be in violation of circumventing those restrictions? There are various whitepapers that have different clauses, but one that caught my eye was EOS. Basically, if you use a VPN to participate, you will then be liable for paying for the legal costs of EOS if they are taken to court for soliciting unregistered securities to Americans.

Here is a direct quote from their EOS distribution paper:

"U.S. persons and Chinese persons are strictly prohibited and restricted from . . . purchasing EOS Tokens and Company is not soliciting purchases by U.S. persons or Chinese persons in any way. . . Company is not bound by this Agreement if this Agreement has been entered into by a U.S. person. . . and Company may take all necessary and appropriate actions, in its sole discretion, to invalidate this Agreement, including referral of information to the appropriate authorities. Any U.S. person or Chinese person who uses the EOS Token Contract and/or purchases EOS Tokens or enters this Agreement on an unlawful, unauthorized or fraudulent basis shall be solely liable for, and shall indemnify, defend, and hold harmless block.one . . . from any damages, losses, liabilities, costs or expenses of any kind whether direct or indirect, consequential, compensatory, incidental, actual, exemplary, punitive or special . . ."



Here is an article explaining it better:

https://cryptoattorneyblog.com/news/2018/1/10/eos-a-tale-of-crypto-insanity

There are no US laws banning ICOs to Americans, rather possible future regulations regarding security classifications for ICO issuers. This is why they ban American participation. If you lie and get into the ICO, wouldn't that be contractual fraud? What I've gathered the only way you'd get in trouble legally is if the ICO issuer started a civil lawsuit against your participation.

I know that there aren't any US laws explicitly stating that Americans cannot participate in ICOs. The ICO issuers ban American participation in fear of future regulations. The SEC statements regarding the DAO only refer to the DAO specifically, but suggests that some, not all, ICOs may be considered a security. But are you committing fraud by circumventing the ICO issuers restrictions with a VPN? Thoughts? This isn't regarding the ICOs that now require KYC.

I've been hearing a lot of buzz about this clarification. Yes, it does essentially state that every crypto trade is a taxable event and needs to be recorded. For example, BTC to LTC is a taxable event and that gain needs to be taxed according to your bracket. I'm just curious what does this mean for this previous year of 2017? I was under the impression that every crypto trade has always been taxed when gains are realized. That was how I was going to pay my 2017 taxes. Some people say you only get taxed when you convert the crypto back into fiat. Can anyone clarify this for me?

Let's say if a US citizen participates in an ICO bypassing the geo-restrictions with a VPN, cashes out to fiat and then properly reports and pays rightful taxes

Hello and thanks for doing this! I had some questions regarding the recent SEC decision on the DAO token, classifying them as securities.

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

1) 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? I basically come to realize this is a gray area.

2) If someone invests into a crypto months ago and then sells and the SEC determines that it was a security in the future, did that investor break the law? Can retroactive action be applied to this if no firm legal standing was enacted in the first place?

That's the thing, I am 100% for paying rightful taxes and plan on doing so. From my understanding, you only pay taxes on a taxable event (like a trade/sell) correct? If I buy and hold without selling/trading, does this need to be reported also? This is a new field to a lot and I want to do it the right way.

The SEC report regarding the DAO token states that is was indeed a security and that the ICO providers and the investors themselves were violating federal securities laws. What happens legally if a token a US resident bought/sold in the past is classified as a security by the SEC in the future?

I have not heard too much talk regarding the recent (July 25th, 2017) release of the DAO Investigative Report. It clearly states that US citizens who participate in ICOs that are considered securities can be legally held liable. I understand no charges were brought in this case in particular, but what does this mean for US citizens who invested into other ICOs?

Full report: https://www.sec.gov/litigation/investreport/34-81207.pdf
US Investors held liable: http://imgur.com/a/IcNYx


Recently the SEC declared the DAO as securities: https://www.sec.gov/news/press-release/2017-131

Basically this means that they are subject to the agencies regulations. From their standpoint, these tokens are a form of shares and selling them without licenses violates federal securities laws. Many people who were unable to access ICOs because of geo-restrictions used VPNs. From my knowledge, the reasons ICO providers prevented US citizens from participating was to protect themselves legally from the United States government. That is true, but also note that the investor themselves can be at fault as well.

Reference this thread by Marco Santori, who is well known when it comes to law and cryptocurrency. He had this to say about the recent SEC statements. Please pay close attention to #6. Let me know your thoughts!

https://twitter.com/msantoriESQ/status/890200014370287620
https://twitter.com/msantoriESQ/status/890187373828616192

What do you mean by "shut me down"? ICO operators are only doing this to protect themselves legally.

Agreed, I think that this issue needs to be discussed more. I feel that the majority of people who bypass region restrictions via VPN are ultimately worried about being about to retain their tokens. Also, the ability to eventually transfer to BitCoin and cash out to fiat.  If the investor is scammed, that is their fault as I see it. Crypto investments are definitely a high risk/high reward venture. Not everyone will hit it big but wow what an exciting time to be in. There really isn't a firm US law blatantly restricting Americans from ICO participation. Only statements have been released regarding their position. I do however fully expect explicit laws within a couple of years. Until then, it's like the Crypto Wild West.

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.

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?

Okay understood, thanks for the input! I'm just trying to figure out if as US citizen participated in an ICO with a VPN without any firm US laws stating that US citizens cannot participate whatsoever, why would I be possibly pursued legally? From my understanding the ICO providers do this to protect themselves legally. I understand the risk of being scammed and if I am that is at my cost.

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.