.png)
DEF Submits a FOIA Request to the SEC in Relation to Kirschner v. JPMorgan Chase Bank
What happened?
On July 27, 2023, the DeFi Education Fund submitted several requests to the U.S. Securities and Exchange Commission (SEC) under the Freedom of Information Act (FOIA) related to the SEC's decision not to file an amicus brief in the Kirschner v. JPMorgan Chase Bank case. The Kirschner case has received a lot of attention in the “TradFi” and crypto communities because of its potential to influence the scope of a “security.”
Despite the Second Circuit Court of Appeals panel of judges specifically asking the SEC to write an amicus brief explaining its views on whether the loans at issue in the case were “securities,” the SEC declined to file a brief on the matter. This decision raises a critical question: Why is the SEC, a regulator often perceived as eager to classify crypto assets as securities, unwilling to provide its analysis in this case?
What does this mean?
Our FOIA requests aim to shed light on this seemingly paradoxical behavior. We have requested documents, communications, and analysis explaining why the SEC made this decision, and which “other agencies” it consulted during the decision-making process. Our objective is to foster transparency in the SEC's decision-making process, especially as it relates to the definition of securities.
Any information produced in response to our requests could provide invaluable insight into the SEC's analysis of classification of “securities” and potentially highlight concerns about their reluctance to publicize that analysis. This could have broader implications for the crypto industry, who has been asking the SEC to publish guidance reflecting such analysis for years. IRS Taxes Staking Rewards
What happened?
On Monday, the Internal Revenue Service (IRS) issued Revenue Ruling 2023-14, which would require crypto staking rewards to be taxed as gross income at the fair market value at the time the taxpayer acquires dominion and control over the rewards—i.e., when they are received.
What does this mean?
The IRS ruling is unsurprising, as they have previously ruled that virtual currency that is mined is treated as income. However, newly minted tokens resonate more with self-created property as opposed to ordinary income since there is no “payer.”
As Jason Schwartz, a lawyer and tax specialist at Fried Frank, put it, “when taxpayers extract minerals, harvest crops, breed livestock, produce art or goods, or otherwise exercise dominion and control over property for which no previous owner exists, they aren't taxed until they sell the property. If newly minted tokens are more like newly extracted minerals than service [payments] or found treasure trove, they shouldn’t be taxed until sold. Blockchains are not tax ‘persons,’ so they're not payers.”
Clarity for Payment Stablecoins Act and KYC Act Move Out of Committee
What happened?
Last week, the US House Financial Services Committee (HFSC) advanced two bills: the Clarity for Payment Stablecoins Act (Stablecoins Act) and Keep Your Coins Act (KYC Act). The Stablecoins Act passed with 34 ayes to 16 nays, and the KYC act with 29 ayes to 21 nays.
As a refresher, the Stablecoins Act would develop a regulatory framework for traditional asset-backed stablecoin issuers. Issuers would fall under the jurisdiction of federal banking agencies, such as the Board of Governors of the Federal Reserve System. For a full summary, please refer to our past weekly update regarding the Stablecoins Act. As for the KYC Act, the bill seeks to protect self-custody of digital assets in the US by prohibiting any federal agency from restricting individuals’ ability to self-custody their digital assets.
What Does This Mean?
The HFSC’s passage of the two bills demonstrates Congress’ continuing efforts to provide the crypto ecosystem with needed legislation. Most notably, the KYC act offers critical protections of U.S. citizens’ right to hold one’s own assets.
The two bills, along with other bills passed out of committee last week, may now undergo a vote by the entire House of Representatives before heading to the Senate.