My major problem with some of the post here is to lead to believe Dfinity and some poster here that if you leave your reward as maturity (or the new Staked maturity), you will never have to pay taxes on this and grow your wealth indefinitely, for decades, without never paying any taxes. This is 100% wishful thinking.
It does not matter that the proposal passes or not. What matter is how you will use it.
As an example, if you stake DOT, you will receive some DOT every few days. Polkadot mint them and send them directly to your account. It seems that everyone agree this is a reward taxable event. IRS is convinced right now that you have to declare and pay taxes on those new DOTs.
Do you really think that because Dfinity has insert a middle trick in between, called maturity, that all investors will get away with taxes for decades, for ever? Really? Wishful thinking again.
Get in the lawmakers shoes for a moment. Do you think they will buy this little tweak and stay away from hundreds of millions, probably billions? Wishful thinking.
Do you think the owners of the 26 millions ICPs, not minted yet and still in a maturity form, will get away with taxes and they can keep going like this for decades, for forever?
It is right to say that companies hire lawyers all the time and try to use all the tax code to their benefits. But this is so misleading here for these reasons:
Most people are small investors, with no financial enough to hire these people
Those companies have a plan B if the strategy does not work and have money to go to court if they really believe in what they do.
They have money aside to pay if they end up to loose their case.
Their money and investments are not lock for 8 years anywhere.
This is not what we have here. We have fathers and mothers investing in order to upgrade their family life. IF it does not work as Dfinity, Dominic or Ben Taylor tend to say and they end up with huge tax bill, with compounded penalties and compounded interest to pay, what are they gonna do? If the lawmakers and IRS donât buy that maturity tweak trick, what will happen to them with all their ICPs locked for 8 years?
You decision will be to be on the safe side or on the greedy side. But at least, in this thread, you have both side of the medal and you will need to take your own decision.
And if ever lawmakers donât buy the Dfinity trick and send bills to investors for their ICP maturity or minted ICP in 1, 2 or 3 years, can you imagine the quantity of ICP that will be for sale (whatever will be available out of locked neurons obviously). Another possibility would be to vote to unlock all neurons so people can sell and pay their tax bill. Can you imagine the ICP price then?
If you are a wishful thinker, you may say this is all impossible. Well⌠TMO, this is very possible and plausible. Up to you all to make your own opinion now.
I stand with @lastmjs that that this proposal is a disaster and those wishful thinkers dream have good chances to come to an end.
Dfinity and his leaders and employees should stay away from creating tricks trying to avoid taxes (because this is exactly what this does) and if they cannot resist to do, they should warn investors of all possibilities accordingly. Taxes is not their business and you will never have my mind change on this.
Good luck to all wishful thinkers out there, because you will need it.
The whole point of on-chain governance is so we can tweak things as we go along.
In the grand scheme of things, the first design is very likely not the best design.
If we identify an area where ICâs tokenomics or staking mechanisms can be improved, we should fix it, or at least strongly consider it.
This proposal seems complex because we all have a preexisting mental model of what staking means, and this proposal changes that. I donât think itâs more complicated than the current system though, all things considered.
Anyways, I have yet to decide on whether to vote yes or no, but maybe we can amend the proposal to get rid of the +/-5% part but keep the rest? @jwiegley would that even make sense?
maybe every part should be voted separately as much as possible?
It makes sense, and if others agree and believe it should be done in parts, please say so.
This proposal has many parts inside it. As we see now, the community may disagree with some parts. So having the proposal in parts, it may be better so we can see which parts are more acceptable and which not.
I suggest it to be done in parts, so we can vote each sector of the proposal individually.
I think itâs a good idea for the proposals to be voted on separately
It is necessary in my humble opinion.
Hey everyone, this thread contains many good points and questions, and I hope to cover them. Discussions will roll on for a while. Big thanks to everyone who has taken the time to give their views so far.
I want to start by addressing the tax considerations, and whether it is appropriate for the design of neuron staking to be sympathetic to them.
The case of a Seed investor who thought they faced major losses
There was an engineer in California, who persuaded his mum to participate in the 2017 public âSeedâ fundraiser. She had not sold anything at all. However, her CPA, who was a leading CPA in the Bay Area, told her that increases in maturity would be seen as equivalent to income by the IRS, and that whenever the maturity of her neurons had increased in the past, an income tax event had occurred. He claimed that each time maturity had increased, ordinary income was received equal to the âequivalentâ number of ICP multiplied by the market price of ICP the time. Given the enormous early highs in the price of ICP, which were likely created by price manipulation on FTX in the hours before Genesis, she was told she had received a huge amount of income, even though she had received no cash receipts from sales, and owed an unaffordable amount of income tax. Consequently, she immediately began using her accumulated maturity to produce ICP, which she then liquidated on an exchange, and began liquidating her retirement accounts to cover the shortfall in funds needed to cover her assumed income tax liability. In addition, she placed all her neurons into dissolve mode to escape further financial danger as soon as possible.
I spoke to the engineer after events were well in motion. I tried explaining that in my view, it was very unlikely that increases maturity were taxable ordinary income. There were two firewalls: (1) that receipt of staking rewards would not be taxable income, since newly minted tokens created through staking were the product of collaborative creative effort, and normally, such product does not create income until sold, and (2) since maturity is only an attribute of neurons, its application is subject to the current design of the NNS, which self-updates, which means maturity cannot possibly be seen as equivalent to ICP tokens on the immutable ICP ledger.
Naturally, these arguments made informally had little effect, and they felt it necessary to heed the advice they were getting. Most holders of ICP do not have the necessary experience with tax law to draw their own conclusions. Meanwhile tax advisors hear the word âmaturityâ and instantly equate it to coupons on a bond, interest paid on a bank balance, or something similar. They have insufficient understanding of decentralized networks and blockchain and in the absence of external guidance draw faulty equivalences. Sophisticated tax lawyers will often draw different conclusions, but they are out of reach for most ICP holders.
Why I provided a tax analysis and proposal to harden the system
I became aware of others in similar situations located around the world. Today, on an ongoing basis, there are people who are continually dumping ICP, even though this is not their preferred course of action, because they fear being unable to pay down income tax liabilities generated by maturity. We must feel for all individuals in this position, and more broadly, this is not good for the networkâs decentralized economy.
For such reasons, I realized that an analysis of the current situation should be provided, to provide those in this situation with input material that might be supplied to tax advisors and/or tax lawyers. In addition, I realized that the design should be further hardened, to make it even more difficult for any tax authority around the world to claim that increases in maturity represent ordinary income that should be immediately taxed. The post I made to propose changes, which is often referenced in this thread, can be found here.
In this thread, some are concerned that designing a tax efficient system is illegal âtax avoidanceâ. Thankfully they are mistaken.
Whenever financial professionals design business frameworks, their designs always take into consideration the tax consequences, and this should also be the case when decentralized protocols are designed, since a key purpose is to allow widespread participation. Considering tax consequences in design is very clearly a form of tax planning, rather than tax avoidance. Tax avoidance involves people making efforts not to pay taxes that are legally due. Tax planning, by contrast, involves designing systems that work with existing tax frameworks in order to legally protect and further the interests of participants, which tax authorities encourage. Proposing design tweaks with the objective of ensuring those staking neurons are not subject to unfair income tax liabilities, when they have received no cash compensation to pay down those liabilities, is very clearly tax planning.
The IRS has since accepted arguments made in the proposal
Please see the tax analysis provided and nature of the proposal (or just search for âTaxation Of Proof-Of-Stake Staking Rewardsâ in the post if you have limited time). Whatâs important is that the arguments involved are derived axiomatically from hard case law. As mentioned in the foregoing, there are two firewalls, which provide powerful foundations for legal argument where tax authorities unfairly claim increases in maturity represent income (and which can inform CPAs/accountants and tax lawyers advising neuron holders).
The first firewall lays out the arguments why the receipt of staking rewards, generally, should not be treated as ordinary income, and why income is only generated when tokens received are sold, exchanged or otherwise disposed of. The argument depends on accepted case law in the United States, but can be extended to nearly every tax system around the world. Thankfully, since the analysis and proposal was posted, it appears the IRS (the âInland Revenue Serviceâ is the primary tax authority in the USA) have accepted the arguments involved, and will not treat the receipt of staking rewards as income tax events. I have updated the post with links to this breaking news.
When my analysis and proposal was first posted, nearly every CPA/accountant in the USA would have advised that when tokens are received as staking rewards they immediately generate income tax liabilities. However, the correct tax treatment of such things derives from the law, and tax authorities cannot ignore the law when defining tax treatment. In this case, the IRS wanted to treat staking rewards as ordinary income, but presumably they were swayed by the same legal considerations that I made in my arguments. In this case, the law will hopefully have prevented those involved in staking in the USA being exposed to harmful financial situations.
Why we must care about these firewalls
Although the first firewall appears to have succeeded in the USA, we should not be lulled into believing that the second firewall is not important. Firewalls should be made as numerous and strong as possible to protect participants in the Internet Computerâs decentralized ecosystem. Furthermore, just because the IRS in the USA appears to have stopped at the first firewall, that does not mean tax authorities in other jurisdictions around the world will do the same, and we need to extend protection as far as possible.
Itâs tempting to make the ideological claim that tax considerations should play no part in decentralized network design. However, in practice that limits participation, ensuring that only community members in special locations like Puerto Rico, Portugal and Monaco can stake with financial safety. This surely makes the argument incompatible with the basic aims of decentralization. If it can be helped, we should do everything we can to provide for broad participation and protect our community and the decentralized token economy created by the network.
Helping evolve an adaptive, self-directed blockchain
We should aim to constantly refine and improve the decentralized protocols of the IC so as to lay ever better foundations for a thriving and growing network economy. That the IC self-directs and evolves using the NNS will potentially eventually prove a decisive advantage - and from day one, it has always been a clearly stated aim of this project to create an adaptive blockchain (see this early post proposing a âBlockchain Nervous Systemâ). We cannot shy from proposing improvements to the NNS framework and tokenomics without abandoning a founding objective of the project.
Because the IC is adaptive, rather than enshrine ossified blockchain dogmas, it seeks to âwinâ through rapid evolution - including some degree of active experimentation. We can already see the advantages of this paradigm in the rapid release of new technical advances and features, such as the provision of capabilities derived from âchain keyâ cryptography to smart contracts that will allow them to create transactions on any blockchain without holding private keys, and turnkey Service Nervous System DAO functionality for dapps, among many other things. No other blockchain on earth advances nearly as fast as the Internet Computer, and eventually, once the price manipulation, FUD and press boycotts fade, and the incredible services being built by our organically growing community begin to make their mark, this will begin to tell.
Thinking about the most controversial feature
In the proposal, when maturity is used to produce new ICP, the quantity of ICP created some days in the future is modulated by ICP price trends. This makes it near impossible for tax authorities to draw a simple equivalence between increased maturity and ICP tokens received and thus claim that maturity represents income received that has created a tax liability. I hope that the foregoing highlights why this is important for large parts of the community, in order to help prevent them being exposed to unavoidable tax liabilities they have no control over, and also for the wider community, who suffer when others feel forced to dump ICP on the markets to mitigate the risks. However, there is also another dimension to this feature.
The modulation feature increases the amount of ICP produced from maturity by up to 5% if the markets are rising, and decreases the amount of ICP produced from maturity by up to -5% if the markets are falling (to understand the full details, please refer to other posts in this thread). This is possible because the NNS is made aware of the price of ICP and various fiat exchange rates by the submission of proposals, which enables it to transform ICP into cycles at a constant rate, where ICP worth 1 SDR produces 1 trillion cycles, such that the cost of computation remains constant for those building dapps and services (note: although currently the NNS learns of external exchange rates through proposals submitted to it, soon it will inform itself by using HTTP outcalls that pass through consensus). As well as hardening the second firewall, this feature also creates incentives for neuron holders.
The system creates a small incentive to use maturity to produce and sell ICP when the market is rising, since more ICP will be received, than when it is falling, when less ICP will be received. In a more mature market, this (or at least some more sophisticated later variant created through the ongoing evolution of the network) might exert a significant stabilizing effect on the market, which is beneficial for adoption of ICP. A concern about this feature, which has already been raised in this thread, is that it is unfair for those wishing to sell during a market decline to receive less ICP than those selling when the market is rising. However, in practical terms, there is a strong counter argument.
Those wishing to sell, will exchange ICP for some other thing of value, most often fiat currency that can be used in the off-chain world. If the overall volume of selling in a downmarket is reduced by this feature, then the price those selling receive for their ICP may be higher. Simply put, often times while those using maturity to produce ICP for sale may receive, say, 5% less ICP in a steeply falling market, the price they receive for their ICP might be 5% or greater higher, and thus overall they will actually do better.
Such economic reasoning is difficult to make work, and its incorporation into tokenomnics schemes pushes into uncharted territory, but that does not mean designs should not take such reasoning into consideration. Decentralized protocols create public networks that survive and thrive by merit of their decentralized economies (even if today, token price often largely derives from conceptions and misconceptions carefully cultivated in the popular imagination, since this will eventually change). The Internet Computer is not a simple blockchain like Bitcoin - it aims to provide a universal public compute layer for the world, so that everything can be built using smart contracts. Today, the remarkable efficiencies of its architecture allow smart contracts to serve HTTP, and data and data processing to be moved on-chain, among other advances. Innovation and evolution should not be limited to things like chain key cryptography, but also involve its tokenomics, even though this too is a complex and difficult area.
We must constantly optimize, not least because the Internet Computer holds continual evolution as a core feature through the Network Nervous System. This allows for iteration where some measured risks can be taken, because the network is adaptive and designs can be refined, on an almost continuous basis, R&D contributions allowing, or if necessary, even reverted if they are not working. We should avoid be distracted by sacred cows and popular blockchain dogmas. The ability of this network to continually evolve along all design axes will prove a decisive strength. The Network Nervous System is what makes the Internet Computer blockchain self-directed and adaptive, and we should also embrace its own rapid evolution, and the evolution of next-generation tokenomics.
First of all, I would like to thank everyone contributing to make the IC better. I understand that everyone has his viewpoint and each one of us wishes the best for the Internet of the future.
I would like to propose an idea, hoping it will contribute for the better: Is it complex on the technical side to have two types of neurons? We could have a âSimple Neuronâ and a âAdvanced Neuronâ.
- âSimple Neuronâ - this would have simple features: simple maturity process (like itâs today, without price modulation rewards), spawn function, merge maturity and maybe no auto-compounding.
- âAdvanced Neuronâ - this one will have all the new features: two types of maturity, stake maturity, exchange maturity, auto-compounding, price modulated rewards etc.
Each user can choose his type of Neuron at the beginning when the Neuron gets created, and it canât be changed until the dissolve delay is finished.
The discussion in this topic (including the other thread about the original proposal of @dominicwilliams) Iâve seen that there are some community members who want to use Neuron rewards for everyday expenses: rent, holidays etc., who usually donât have high staking which could lead to selling pressure. This way we would have those who stake inside âSimple Neuronsâ, and donât worry about price-modulated rewards.
On the other hand, we would have those who use âAdvanced Neuronsâ which are more tax-friendly, but come with price-modulated rewards.
I also want to mention the fact that we could introduce a maximum cap for âSimple Neuronsâ, to avoid high staking for this type of Neurons. Some whale could create many âSimple Neuronsâ, but all this comes with less features (like no auto-compounding) which makes managing a big number of this type of Neurons harder (having to merge maturity for each one of them everyday; spawning rewards and waiting each one to get dissolved etc.)
Furthermore Iâd like to mention that some community members who live in muslim-law countries, canât use this new staking system, because of price-modulated features, which are considered prohibited gambling. So we will have less staked ICP and less decentralisation because of less voting Neurons. If we are to take in consideration the US community for their taxes, shouldnât we also consider those community members as well, who, in some way, will get banned from staking and voting?
Using this system of two types of neurons, we would give to the community the freedom to choose what suits them, have more ICP staked and a more decentralised voting system.
The idea could be elaborated more, but I didnât have time to write or think deeper on this.
@coteclaude - I wasnât going to respond to this, but I had already drafted the below in a private conversation so I figured Iâd share here, too. To be clear, I am not offering anyone tax advice: Iâm not a tax lawyer and I havenât read the tax code. Iâm just a guy who has done some research on the subject.
The central question is: when are rewards taxable as income? For rewards on the Internet Computer, the possible answers are: (1) when âmaturityâ accrues; (2) when new ICP is minted, either through the âmergeâ function or the âspawn neuronâ function; (3) when the newly minted ICP is no longer locked in a neuron; or (4) when the newly minted ICP is sold.
For tax purposes, income in the US is realized whenever there are âinstances of [1] undeniable accessions to wealth, [2] clearly realized, and [3] over which the taxpayers have complete dominion.â Commissioner v. Glenshaw Glass Co. , 348 U.S. 426 (1955); see also IRS Chief Counsel Advice memo 202114020 (âThe date of receipt and fair market value to be included in income will be dependent on when the taxpayer obtained dominion and control over theâ cryptocurrency).
The IRS has provided guidance on what the term âcomplete dominionâ means in the context of airdrops. It has said: âB has dominion and control of Crypto S ⌠when it is recorded on the distributed ledger, because B immediately has the ability to dispose of Crypto S.â That is of course non-binding: it is merely guidance. But it is persuasive, nonetheless.
That definition of âdominion and controlâ indicates that maturity alone is not taxable as income because it is not recorded on the ledger, nor can you dispose of maturity. I understand that people here are weary of that argument because you can seemingly convert maturity to ICP at any time. But thatâs not entirely true: you need to have at least 1 ICP worth of maturity to convert it. Moreover, the way it works is that you have to ask the decentralized network to convert your maturity to ICP: the rules of the network could be changed at any time to prohibit someone from converting maturity to ICP.
Moreover, assuming arguendo that maturity is the equivalent of ICP (itâs not), it still doesnât fall under the definition. Under the current system, if you convert maturity to ICP, the ICP is controlled by a non-transferrable neuron for 7 days. Thus, you donât have control over the ICP you minted: the network controls it for 7 days.
There are also practical reasons why maturity should not be considered income. I wonât dive deep into those reasons, but some are: (1) a token holder might only want to participate in governance and not actually receive any rewards, and therefore never actually convert maturity to ICP; (2) prices of crypto tokens are highly volatile, and the price of ICP when you have âmaturityâ might be substantially different from the price of ICP when you are actually able to sell the ICP that you minted with your maturity; (3) taxing maturity would require people to convert maturity to ICP daily. The list goes on.
My personal view is also that âmergingâ maturity is not taxable, either. But I recognize that it is a much closer call. Merging maturity actually creates new ICP on the ledger, but it is not under the control of the person who âmergedâ: the ICP is given to a âneuronâ that is controlled by the system, and cannot be transferred or sold. Thus, I donât think that merging fits the requirements outlined by the IRSâs definition of dominion and control.
The wrinkle, though, is that the user who merged could have instead spawned a new neuron. So although the user doesnât have control of the ICP, an argument could be made that the user exercised control when it locked up the ICP in a neuron instead of spawning it. I disagree with that argument because to me that âcontrolâ element means control over the ICP itself after it has been added to the ledger. If the ICP is in a neuron, you cannot possibly control it: you cannot transfer it, you cannot sell it, you can only use it to vote on proposals.
As I read it, the proposal Dom/Dfinity made recognizes the ambiguity Iâve outlined above, and seeks to tweak the system so that rewards fall squarely outside of the requirements for taxable income until the rewards are actually converted to ICP that can be sold for fiat.
Edit: The more I think about it, the more clear it becomes to me that the âclearly realizedâ prong is actually the most important prong in the analysis. I came across an old Supreme Court case that found that shareholders did not ârealizeâ income when they received a stock dividend (as opposed to a regular dividend, which comprises cash payments from the company to the shareholders) from the company whose shares they held. See Eisner v. Macomber, 252 U.S. 189 (1920). There, the court reasoned: âStock dividends ⌠merely give the shareholders additional pieces of paper to represent the same equitable interest; they do not transfer assets or create new priorities among the security-holders. The total value of the common shares, though now spread out over a larger number of units, is left unchanged from its previous level. In effect, nothing of substance has occurred.â
The Internet Computer is not a company, nor is ICP a stockâICP is the right to vote in the Internet Computerâs governance. But I think that Eisner is more or less directly on point. There, the company created and distributed shares in the company (which gives shareholders collectively control of the company) to existing shareholders; here, the NNS creates and distributes governance tokens (which give tokenholders collectively control of the Internet Computer) to existing token holders. There, the new shares diluted the voting power of existing shares; here, the newly minted ICP dilutes the voting power of existing ICP. There, the market cap of the company as a whole theoretically did not change when the stock dividend was issuedâjust the value of each individual share; here, the market cap of ICP shouldnât change when new ICP is minted (because ICP, as a governance token, theoretically derives its value from the right to govern the Internet Computer).
@dominicwilliams, you might want to add the Eisner case to your memo.
Dominic
Thanks for coming on this thread. That was really needed. Please be aware that everything in all my posts are written with respect to everyone views.
Just so you know, I am a huge fan and investor in ICP. I keep promoting hard and have many friends that have invested because of me. I have invested much more then what I can afford to loose. We are all in over 50% lost right now but do not care and keep explaining my friends not to care either. The tech is phenomenal to me and price will get there anyway.
First of all, I need to correct your biggest mistake in this post. here you say : it appears the IRS (the âInland Revenue Serviceâ is the primary tax authority in the USA) have accepted the arguments involved, and will not treat the receipt of staking rewards as income tax events. This is WRONG. They have not accepted anything.
Please reed the article from professor of law and the academic director of the Graduate Tax Program at the University of California, Irvine School of Law and posted on Coindesk: It says expressly otherwise.
I would tend to say that this professor have more knowledge then you, me and @bentaylor combined.
I hate to pay taxes as much as anyone. I hate how the government is using my money for things I also hate. I also feel the pain of that California mom who is stuck to pay taxes. Her and her son should have made more due diligence and stay on the safe side. Easy to say afterwards though.
This is exactly what I am trying to avoid here, another huge tax mistake, but at a much, much larger scale, for many more people. I have the same wishful thinking as you and all other readers here. The only difference is I am fully aware this is all wishful thinking. Programming a tweak to avoid paying hundreds of millions of taxes to uncle Sam will never pass through. It may take some time, but the end result will be the same. This is exactly why IRS have offered a check to this Tennessee couple. They are using all the time to be well prepared and win over the rewards staking taxes.
So my argument does not worth much than yours. Then, because I am a positive person, I suggest a solution.
Before programming and voting on anything, why donât Dfinity approach the 2 largest tax firm in US (Deloite and KPMG), and get a recommendation letter from them. This thread would be very useful for them as well. Then your recommendation would have much more credibility and chances to avoid catastrophic consequences for many investors would be lowered by much.
Honestly and I hope I am wrong but I think you wonât do this because you are afraid that this may not support all you are writing here, and probably be the total opposite.
Again, I really hope I am wrong and would be so happy to be.
Can we do this before anything else? Deloite and KPMG? It would be well worth for all investors.
It seems that Dfinity is trying to repair a mistake of 2017 (not disclosing to seed investors that they should be very carefull with their taxes) by a much bigger mistake, tweaking the system to avoid taxes TMO.
Letâs do this please. Take a couple of weeks for Deloitte and KPMG to share their views with us.
Hey Dominic, thank you for this post. It is very helpful to my consideration of this proposal. I think you have made sound arguments that strongly support the proposal. Itâs good to see you in the community offering your perspective on important topics.
Hello. I do appreciate your genuine concern for the proposals. Based on your posts, it may be fair to say that you believe tax authorities might view maturity, and/or the act of merging maturity back into neurons, as a taxable event. It also seems your position is that all, not some, of the proposals will definitely not be a firewall to the taxable event conclusion that tax authorities may reach regarding maturity or merged maturity.
If what I said is accurate regarding your viewpoint (proposals wonât change a thing regarding taxation), then what difference would it make, in your opinion, if neuron holders have these additional maturity mechanisms at their disposal? No matter what, weâre still possibly on the hook for maturity taxation, is what you believe, correct?
Therefore, what would be the âcatastropheâ if any one of these proposals was enacted? Taxation outcome will still be identical to the current situation, in your opinion, correct?
Side point: I donât believe anyone who has contributed to the discussion, including supporters of the proposals, have ever said that the proposals will result in absolutely, positively no tax liability. I think everyoneâs comments have recognized that when a person disperses neuron(s) and ultimately chooses to convert to a Fiat currency, they absolutely will pay taxes as a result.
Thanks in advance for your reply!
Hello and thank you for your reply. We are on the same page all the way except your last sentence, where I see something very important missing.
"I think everyoneâs comments have recognized that when a person disperses neuron(s) and ultimately chooses to convert to a Fiat currency, they absolutely will pay taxes as a result."
Yes, but the first tax event , (in my view, in IRS view, in my fiscal lawyer view, and in the California CPA view Dominic was talking about) is trigger as soon as you receive maturity.
Here is from Dominic own post;
*"However, her CPA, who was a leading CPA in the Bay Area, told her that increases in maturity would be seen as equivalent to income by the IRS, and that whenever the maturity of her neurons had increased in the past, an income tax event had occurred. He claimed that each time maturity had increased, ordinary income was received equal to the âequivalentâ number of ICP multiplied by the market price of ICP the time"
By coincidence, this is exactly what my own fiscal lawyer told me last December after the analysis of the system and my neurons, without any hesitation.
And TMO, to make it difficult for them to get the exact value will not be a successful trick to avoid the taxable event. This one is only personal opinion.
And like I said in previous post, does not really matter if the proposal passes or not. It is up to each investors to manage their maturity as a tax event or not. It is not a secret here that the proposed programming goal is to avoid tax. It is clearly stated by John in the first post ( * How to avoid incurring a tax burden;). It may not work that way though. And if it does not work as planned by Dominic and it end up working like IRS want to, then it would be the catastrophic consequence I was talking about for many investors if they were accumulating clear of all taxesâŚ
I still propose to take some little extra time to handle the situation professionally and hire strong fiscal firms (KPMG, Deloite or better both) and have their interpretation and recommendation about how this should be handled. Then we could vote with appropriate knowledge on the changes or not.
I will share my guess: They would tell us that the maturity should be a tax trigger event (like the California CPA of a lead firm) and we should not bother with that maturity at all. Only my guess, not to displease anyone.
Donât get me wrong, I donât like that either. I would be everyoneâs dream to grow maturity, with no taxation, leading to an incredible untaxed wealth. I am locked for 8 years, not dissolving. But I am a realistic person. Better to be safe then sorry. Again, I hate pay taxes more then all the posters here combined.
The only way I could be affected is if in few years, lots of investors end up having to pay huge amount of taxes and tank the price by selling as much as everyone can. This is how I can be affected. But it would be temporary anyway.
I choose the safe side.
Thanks for your clarification!
It would seem, therefore, that your position is that the potential âcatastrophic consequenceâ does not inherently lie with the governance proposals themselves, not due to their very nature or mechanism.
Rather, I can conclude that your point is that you, me, and everyone else that is receiving maturity will experience serious problems with our respective tax authorities if we donât think of our maturity as taxable events right now - no matter if we stake maturity, merge maturity, disperse maturity, keep maturity and do nothing with it - no matter the maturity proposals, options, or âleversâ we decide to pull.
And furthermore, it would seem prudent, in your viewpoint, if everyone make certain personal tax decisions relative to the viewpoint that maturity = taxable event. Correct?
Your comments reflect a genuine concern! And not just for ICP neuron holders who receive maturity through staking, but for all persons that stake any kind of crypto and receive some kind of âbenefitâ.
Dominic Williams produced a defence of his proposal which says nothing much new, aside from the story of a clueless mother who faced an unexpected tax burden. It is more a reiteration of his position than a response to comments by the community. The one place he makes a new point is his contention that constant optimisation is a good thing, and is built into the very foundation of ICP. It is what makes ICP adaptable and therefore better than other chains.
I believe this is true when it comes to technical optimisations, which includes things like BTC integration, HTTPs requests by canisters, Canisters holding ICP and many excellent advances made in the past few months.
However, there are also aspects of governance that the community needs to be very wary of changing. These are a different order of alterations from technical ones. Technical changes in general are unanimously considered improvements but changes in governance can be a matter of ideology rather than simply technical operation. The very idea that Dfinity allows shifts in the way tokens are treated is anathema for many in the crypto community. The fact that Dfinity could, if it wanted, take away our tokens is a deal-breaker for many. Therefore, the ability to change tokenomics must be seen as a double-edged sword. The more fiddling there is to deal with individual jurisdictional issues, the weaker the entire system appears.
We could have rolled back a particular transaction to return 40k ICP to an owner who had proved his ICP was stolen. His proposal failed because it was a âthin-end-of-the-wedgeâ issue: if we roll back for this do we roll back for every such incident? The current debate is not that different, although more people are involved. One could easily ask, âwhy did investors not do due diligence?â because maturity was obviously likely to be a taxable event. If a trusting mum bought the token based on her engineer sonâs recommendation, well, itâs the sonâs fault, isnât it? He is the engineer, he should have known better, and he should sort it out. In the end, she will make a big profit anyway, so Iâm not fussed.
Can we schedule a live Community Conversation for this proposal?
I think a slideshow with a Q&A session will definitely help clear up confusion. Thereâs some misunderstanding over what this proposal actually does and what it does not, I think.
@jzxchiang @OVVOVVO
I come back to the problems @jwiegley is referring to:
# Objective
## The Problem
Those with ICP staked in neurons face two main challenges when dealing with the maturity they earn as a result of voting rewards:
1- How to avoid incurring a tax burden;
2- How to compound maturity with the least manual effort.
I will make 2 separate post for these 2 problems. They seem quiet simple to me.
The first one is âHow to avoid incurring a tax burdenâ. John will correct me if I understand it wrong but my actual understanding is that the âBurdenâ is the fact investors would have to manage and sell some ICP (or pay otherwise) as the minting of ICP from maturity is triggering a tax event. Dfinity assume that leaving as maturity would eliminate this trigger and the burden associated with it. Is this correct @jwiegley ?
My problem is that Dfinity have not provided any supportive documentation from a qualified and reliable tax firm to support their position. So there are possibilities that maturity is a taxable event and this proposal would not have to be voted as it would not achieve the goal. So I believe doing the things right would be to obtain such a supportive recommendation from a reliable tax firm first.
2- How to compound maturity with the least manual effort.
This is much different and I am against this. Dfnity and the community is stating loud and clear IC is decentralize and controlled by the governance. With this new programming, I could follow ICPM for voting in the governance and check the box Merge automatically, and logout from my account. I can be years without accessing my account, with no clue what is going on with the network, with no clue about what is voted or not and I could not give a dam⌠because I still get rewarded the same as all the people who, like me, take few minutes everyday to read all governance proposal, understand the impact of them and vote on it.
If it was only me, I would make the opposite. Eliminate the following option for governance, Create a check box on every governance proposal âI have read and understand the impact of this proposalâ and be forced to vote manually.
With this programming, good chances that 99% of investors will follow one of the 3 leaders (ICPM, etc) and check the box to compound automatically. So a handful of people will vote and all the others are only followers with the vast majority having no clue about what is going on.
Dfinity have always stated that you get reward because you are voting. When you donât access your account for months or years and get the rewards just the same, this is not voting for me, and not fair for the investors that are really voting.
My 2 cents view only.
I am wondering of there are other people looking at this like me or if I am the only single one?
Edit: This one cannot harm investors like the maturity could do. Way less important in that sense.
So to reiterate, according to the leading CPA firm referenced to in this topic by Dominic advised, every grant of maturity is taxable when it happens.
This is also the advice given to many others, as per their post, in this topic by presumably independent CPAs/Financial Advisors etc.
If we donât believe them, we owe it to ourselves to have hire strong financial firms like KPMG AND/OR Deloitte and get ADDITIONAL EXPERT opinion.