Submitting supporting schedules for crypto-related taxable activities

When a fund receives a digital asset in any other circumstance beyond a purchase of that asset with cash, it may result in taxable activity for the fund. Whether the receipt of that asset generates taxable activity or not depends on the facts and circumstances of the transaction. 

There are three general scenarios we will inquire about ahead of preparing the schedule K-1s and tax returns for funds holding digital assets:

1. Staking - Did the fund receive any staking rewards?
2. Airdrops or Dividends - Did the fund receive any digital assets as (i) airdrops or (ii) as dividends from token producers or portfolio companies?
3. Crypto Transactions - Did the fund exchange tokens held by the fund for a separate digital asset?

Staking 

If the fund is staking any digital assets and receiving rewards in exchange for that service, we will report the value of the tokens received at the time of receipt as taxable income by the fund. 

We will generally treat crypto as received for tax purposes when the fund gains the ability to transfer, sell, exchange or otherwise dispose of it. 

For any staking receipts, we are requesting a csv or excel file that includes a record for each transfer of tokens to the fund, clearly displaying:

1. The name of the token(s) received
2. The amount of token(s) received
3. The date the token(s) were received
4. If available, the “fair market value” (FMV) of the token(s) at the time of receipt

Airdrops or Dividends

If the fund receives an airdrop of token(s) or a dividend of token(s), we will report taxable income equal to the value of those token(s) on the date of receipt. 

It can be difficult to tell the difference between these two types of receipts. In most cases, if the tokens are received from a portfolio company in proportion to the fund’s ownership of equity in the company, we will report the receipt as a dividend. 

If the tokens are received because the fund already owns specific token(s), the transferor is sending tokens for promotional reasons or in any scenario that does not constitute a dividend as described above, we will report the receipt as income from airdrops. 

For any airdrops or dividends, we are requesting a csv or excel file that includes a record for each transfer of tokens to the fund, clearly displaying:

1. The name of the token(s) received
2. The amount of token(s) received
3. The date the token(s) were received
4. If available, the “fair market value” (FMV) of the token(s) at the time of receipt
5. If the receipt is a dividend or an airdrop

Crypto Transactions

The exchange of digital assets for other digital assets will generally result in a taxable transaction, despite the fact that no cash may be exchanged. 

We will report capital gain or loss equal to the excess of the vale of the tokens received over the value of the tokens transferred. 

For any crypto transactions, we are requesting a csv or excel file that includes a record for each transfer of tokens to the fund, clearly displaying:

1. The name of the token(s) received
2. The amount of token(s) received
3. The date the token(s) were received
4. If available, the “fair market value” (FMV) of the token(s) at the time of the transaction
5. The name of the token(s) sent in exchange
6. The amount of token(s) sent in exchange
7. The date the token(s) exchanged were purchased or received
8. If available, the “fair market value” (FMV) of the token(s) at the time of the transaction
9. A brief description of the transaction