in the country with legal framework for cryptocurrency
exchange not consistent with the laws and regulations of
the U.S.
Legal framework for cryptocurrency trade is still at the
stage of development, both in the U.S. and abroad, with
no uniformed approach to regulating this market. Even
within the United States, regulations vary significantly,
from Colorado passing bipartisan legislature 5 exempting
cryptocurrency from state securities regulations, to Iowa,
introducing a bill 6 that would prohibit the state from
accepting payments in cryptocurrency. Outside the United
States, documentation on origination of cryptocurrency
would not be available to the citizens of countries where
cryptocurrencies are subject to government restrictions,
virtually foreclosing EB-5 program for crypto-traders from
these countries.
And even if the funds were derived from crypto trade in
the countries without ban on this type of transactions, the
perceived anonymity of the trade makes cryptocurrency
a “prime suspect” in tax evasion allegations, and for this
reason is not favored by USCIS. Legitimate concerns
have been raised by regulatory authorities worldwide that
some employers pay employees in cryptocurrencies to
avoid liability for payroll taxes and online sellers accept
cryptocurrencies to avert sales and income tax liability.
Understandably, these concerns undermine credibility of
cryptocurrency trade for USCIS, an agency that traditionally
relies on transpare ncy in business dealings of the
applicants.
According to the IRS, the U.S. government applies the same
taxation guidelines to all cryptocurrency payments by and
to U.S. persons and businesses 7 . However, many countries
do not have such policies in place, which makes exchanges
between traders much less traceable and more difficult to
document sufficiently for EB-5 processes.
In Zhang, the court remarkably emphasized that “bona
fides of a loan tend to show that its proceeds were lawfully
acquired.” 8 Apparently, transactions that potentially indicate
intent to avoid taxation and reporting taint the entire trace
of funds for an EB-5 petition. Applying the Zhang approach
to the cryptocurrency trade, it could be concluded that
compliance with local rules and regulations at the stage
of initial acquisition and sale of the cryptocurrency by the
investor tends to prove legality of the proceeds from that
trade. Accordingly, the investors from the countries with
more regulated cryptocurrency markets are more likely
to meet the evidentiary burden under the “preponderance
of evidence” standard 9 by presenting evidence of their
domestic tax compliance than investors from the countries
where neither legislature, nor tax authorities provide
guidance on reporting and tax payments.
AUTHENTICATION: CLOSING THE GAPS
Despite expansion of the definition of “cash” in the Zhang
opinion, the court does not dispose of the requirement
to document a path of the funds from origination to
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