EB5 Investors Magazine "Top 25 Awards Edition" Volume 8 Issue 1 - Page 17

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 EB5INVESTORS.COM 17