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Monday, Might 29, 2023
Brunson: Tax Entity Standing And Decentralized Autonomous Organizations
Samuel D. Brunson (Loyola-Chicago; Google Scholar), Standing on the Shoulders of LLCs: Tax Entity Standing and Decentralized Autonomous Organizations, 57 Ga. L. Rev. 603 (2023):
Because the formation of the primary decentralized autonomous group in 2016, their use has exploded. 1000’s of DAOs now attempt to make the most of good contracts to unravel an issue that plagues enterprise entities: the gulf between possession and administration. Armed with good contracts and requiring token-holders to vote on any change in technique, DAOs dispense with the administration layer so obligatory in conventional enterprise entities.
DAOs owe their existence to know-how. With out blockchain, with out cryptocurrency, and with out good contracts, there could be no DAOs. However they owe their explosive to one thing far more surprising: Treasury laws.
Within the wake of restricted legal responsibility corporations, the final main new entity to emerge, Treasury created the check-the-box laws. Prior to those laws, a enterprise entity needed to decide whether or not it had extra partnership or company traits to determine whether or not it might be taxed as a partnership or an organization. LLCs didn’t match comfortably into both class, so businesspeople didn’t undertake the shape. When enacted, the check-the-box laws allowed most enterprise entities to resolve how they wished to be taxed and file an election with the IRS for that therapy.
This certainty futureproofed entity taxation. New enterprise varieties—together with DAOs—now not should seem like earlier varieties. They’ll select their tax standing. And with out the obstacle of taxes, individuals can—and did—undertake the DAO construction.
Tax entity standing comes with obligations, although. And whereas DAOs don’t have to fret about their entity standing, they do want to satisfy the obligations attendant to the standing they select. This Article discusses a number of of these obligations, obligations which, at instances, run counter to the ethos of DAOs.
https://taxprof.typepad.com/taxprof_blog/2023/05/tax-entity-status-and-decentralized-autonomous-organizations.html
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