Podcast: Understanding Crowfunding with Mark Roderick

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Rules are always changing in the crowdfunding space. Make sure that it is the best way for you to raise private capital by understanding the mechanics of this process. In this episode, let one of the leading Crowdfunding and FinTech attorneys, Mark Roderick, get you up to speed with the new laws and technology, and how the internet has disrupted this industry. Mark also talks about three flavors of Equity Crowdfunding and the rules for each type. Get an investor’s point-of-view and determine factors that dictate how much money you need to raise.

Questions? Let me know.

IRS Issues New Guidance on Taxation of Cryptocurrencies

MSR Update

The Internal Revenue Service just issued more guidance on the taxation of cryptocurrencies. The guidance comes in the form of Revenue Ruling 2019-24 and a set of FAQs. Officially, the guidance applies only to Federal income taxes. However, states are likely to follow the IRS rules.

Revenue Ruling 2019-24 is about hard forks in a distributed ledger. The IRS concludes that the hard fork is not itself a taxable event – that is, if you hold a cryptocurrency immediately before a hard fork and still hold it immediately after, the hard fork has no tax consequences. On the other hand, if you receive an air drop of the new cryptocurrency following the hard fork, you’re taxed on the value of the air drop.

Otherwise, there are no surprises in the new guidance. Thus:

  • Cryptocurrency is treated for Federal income tax purposes just like any other property, a diamond or a rusty 1964 Chevrolet. Cryptocurrency is not treated like U.S. dollars in any sense.
  • If you receive cryptocurrency in exchange for something else, whether property or services, you’re treated as having received a payment equal to the value of the cryptocurrency at the time you received it. If the bitcoin was worth $3,000 at the time you received it, you received a payment of $3,000 for each bitcoin you received, even if the bitcoin was worth $500 the month before or $10,000 the month afterward.
  • When you dispose of cryptocurrency, you have gain or loss based on the difference between the amount you paid for the cryptocurrency – your tax “basis” – and the amount you received for it, just as if you were selling the 1964 Chevy.
  • In general, you have capital gain or loss from selling cryptocurrency. But if you’re in the business of trading cryptocurrency the cryptocurrency will be treated as “inventory” and you’ll have ordinary income or loss.
  • Cryptocurrency received for services is treated as income for purposes of self-employment taxes as well as for purposes of income taxes.
  • Most people would guess that receiving cryptocurrency is taxable, g., my employer paid me $5,000 of ether, so I’m taxed on $5,000 of income. Less obvious is that you’re subject to tax when you pay someone with cryptocurrency. For example, if you’re the employer and pay your employee $5,000 of ether, you have engaged in a taxable sale of your ether, as if you had sold the ether for $5,000 and then turned around given $5,000 of cash to your employee.
  • If you trade one cryptocurrency for another, it’s a taxable sale. There is no such thing as a tax-free exchange of cryptocurrency, as there is for real estate.
  • If you own a bunch of bitcoin and want to use some to buy a house, you can choose which of your bitcoin to use (presumably the bitcoin with the highest tax basis).
  • If you receive cryptocurrency as a gift, it’s not taxable. Caution: there is no such thing as a business “gift.”
  • You can make a charitable contribution using cryptocurrency. If you’ve held the cryptocurrency for more than a year, your deduction is generally equal to the value of the cryptocurrency. Otherwise, your deduction is the lesser of the value of the cryptocurrency or your tax basis.
  • If you contribute cryptocurrency to an LLC or partnership, it’s not taxable at the time of the contribution. But when the LLC later disposes of the cryptocurrency, you will be taxed on any gain that was “built in” to the cryptocurrency at the time you contributed it.
  • If you own multiple crypto wallets, you can transfer among them without tax consequences.

Questions? Let me know.

Facebook’s Cryptocurrency

Facebook just announced a Facebook cryptocurrency called Libra.

To me, the timing seems poor. Over the last year or so, Facebook has suffered one public relations black eye after another regarding its privacy policies, it compliance with an order of the Federal Trade Commission, its role in disseminating conspiracy theories and election interference, and its dominance in the social media industry. A Facebook cryptocurrency will, by definition, give Facebook even more private information and even more financial power. Already, regulators and members of the public are shouting “No!”

A few thoughts about what this means:

  • Not long ago, some predicted that cryptocurrencies would lead to a better world, a world that would be more free, more decentralized, where consumers could interact with one another without middlemen. Libra, a cryptocurrency created by one of the most powerful companies in the world, seems to promise exactly the opposite.
  • It didn’t take long to get from idealism to disappointment, but the arc itself is typical of technologies, from radio to automobiles to the internet. We expect technologies to save us, then they don’t.
  • Are tokens securities? Does Howey apply? Facebook’s announcement shows that those questions are small potatoes in the scheme of how cryptocurrencies may re-shape the financial world.
  • Undoubtedly, Facebook is in this for the data. Will consumers care? Probably not.
  • Facebook might be first, but how long can it be before Google and Amazon — especially Amazon — issue their own cryptocurrencies?
  • Regardless of political persuasion, governments aren’t going to allow Facebook or anybody else to compete with their national currencies. We are already seeing opposition from Democrats and Republicans alike, and we can expect more.
  • And the next step: How long can it be before the U.S. dollar itself is given the features of a cryptocurrency, in effect competing with Facebook?
  • The price of bitcoin increased on the announcement, but I think that’s exactly wrong. The announcement shows that bitcoin and other cryptocurrencies will be left behind as big companies take over, just as a few big companies now monetize the once-egalitarian internet.
  • In the same way, I expect the announcement to stifle innovation in the cryptocurrency industry generally, just as the existence of Facebook already stifles innovation in social media and Microsoft once stifled innovation in software. Nobody wants to compete with the giant.

As all six readers of this blog know, I’m a believer in Crowdfunding from a capitalist, ideological perspective. I believe in making capital available to entrepreneurs everywhere, no matter where you grew up, no matter who your parents are, and in making great investments available to ordinary Americans, helping to narrow the wealth and income gaps that do so much harm to our society.

Frankly, Facebook and Libra feel like a step in the opposite direction, toward a world where knowledge and wealth and power are more concentrated and ordinary Americans are so many data points to be monetized. I’m certainly interested in hearing a different point of view.

Questions? Let me know.

Mark Roderick is one of the leading Crowdfunding lawyers in the United States. He represents platforms, portals, issuers, and others throughout the industry. For more information on Crowdfunding, including news, updates and links to important information pertaining to the JOBS Act and how Crowdfunding may affect your business, follow Mark’s blog, or his twitter handle: @CrowdfundAttny. He can also be reached at 856.661.2265 or mark.roderick@flastergreenberg.com

The Wealthy Wellthy Podcast: What You Don’t Know About Crowdfunding

The Wealthy Wellthy Podcast: What You Don’t Know About Crowdfunding

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Our guest on this episode of The Wealthy Wellthy Podcast is Mark Roderick, an attorney who devotes most of his time to crowdfunding. Maybe you are like me in thinking that crowdfunding is pretty straightforward and self-explanatory. I mean, if your friend is looking to start a business and you want to support them, you can donate or invest through their crowdfunding page online and that’s that, right?

Every entrepreneur faces the stage in their business where they need to acquire capital, either from acquaintances, networking, angel investors, venture capitalists, or strategic partners. This process is messy and confusing, filled with regulations and stipulations that may make acquiring the capital more trouble than it is worth. This was partially due to the antiquated laws that were created in the aftermath of The Great Depression and were stifling in the modern economic climate. However, in 2012, the Jobs Act made it legal for entrepreneurs to advertise to raise capital. This opened up a whole new world for small business owners and others who were desperate to be able to connect more easily with potential investors as well as investors who were eager to find new opportunities.

During the interview, Mark distinguishes between the 3 kinds of crowdfunding: (1) to accredited investors only, (2) Regulation A to accredited or non accredited investors, and (3) Title 3 – which is the most common. He also talks about the factors that are most important from a legal perspective when you are determining which crowdfunding site to use to raise capital or to invest capital. It was also interesting to hear Mark spell out the 3 reasons why people invest through crowdfunding: (1) they want to support the company, (2) to do social good, and (3) to make money.

Mark even gave me some advice about a real estate deal I am considering and revealed that 90-95% of the capital exchanged through crowdfunding is for real estate transactions. Finally, he busted a couple of myths regarding the amount of risk involved in crowdfunding and whether money raised from others is subject to securities laws.

What We Covered

  • [2:16] – Who is Mark Roderick?
  • [3:28] – Mark describes the fragmented traditional ways of raising capital.
  • [8:58] – Angel investors and how to present your “deck” to them.
  • [11:08] – Working with venture capitalists and strategic partners.
  • [13:31] – A brief history of the laws affecting capital.
  • [22:34] – What does crowdfunding look like for startup entrepreneurs?
  • [27:20] – How to find a regulated site to post your capital request on.
  • [30:58] – Crowdfunding is the intersection of old and new school.
  • [34:57] – Advice to keep in mind when you are using a crowdfunding site.
  • [38:06] – Mark tells us 3 of the crowdfunding sites he works with.
  • [40:08] – When should an entrepreneur hire an attorney during this process?
  • [42:40]– The prevalence of real estate in the crowdfunding world.
  • [53:24] – What message does Mark want to get out there?
  • [56:17] – Mark busts 2 myths about crowdfunding.

Questions? Let me know.

Consensus Network Podcast: Crypto Thaw And Crypto Law

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On this episode of the Consensus Network Podcast, host Buck Joffrey discusses how regulations and laws are affecting the crypto landscape for better and for worse with FG’s Mark Roderick. Here are some highlights:

  • The “Wild Wild West” of crypto ICOs
  • What happens to tokens that violated the SEC rules?
  • What needs to happen for exchanges to become more compliant in the eyes of american securities law?
  • The possibility of a crypto ETF
  • Utility tokens vs. security tokens

Questions? Let me know.

More IRS Regulations On Qualified Opportunity Zones

Skyscraper Buildings Made From Dollar Banknotes

The IRS just issued more proposed regulations under §1400Z-2 of the Internal Revenue Code, dealing with investments in qualified opportunity zones and qualified opportunity funds. Some highlights:

  • In general, a QOF must spend at least as much to rehabilitate a building as it paid for the building itself. But this rule doesn’t apply to a building that’s been vacant for five years. This presents an enormous incentive to acquire and rehabilitate vacant properties (that are located in QOZs).
  • The tax benefits associated with QOFs are available only to an “active trade or business.” The new regulations provide that (1) the ownership and operation (including leasing) of real estate can qualify as an “active trade or business,” for these purposes, but (2) a triple-net lease of real estate is not an “active trade or business.”
  • To qualify for tax benefits, a corporation or partnership must derive at least 50% of its gross income from the active conduct of a business within a QOZ. The new regulations provide three safe harbors and a facts-and-circumstances test to make this 50% calculation.
  • In general, at least 90% of the assets of a QOF must be in the form of “qualified opportunity zone property.” The new regulations allow the QOF to ignore investments made by investors in the QOF during the preceding six months in making this calculation, as long as the new investments are held in cash, cash equivalents, or certain short-term debt instruments This rule will make it far easier for QOFs to satisfy the 90% test while continuing to raise capital.
  • Similarly, if a QOZ sells assets and reinvests the proceeds in other assets, then the proceeds of the sale will be treated as “qualified opportunity zone property” for purposes of the 90% test, as long as they are held in cash, cash equivalents, or certain short-term debt instruments and reinvested within 12 months. Of course, any gain recognized by the QOZ from the sale will be taxed to investors.
  • The new regulations provide that an investment in a QOF may be made with cash or other property, but not by performing services for the QOF.
  • The new regulations provide alternative approaches to valuing the assets of a QOF, both for making the 90% calculation and for determining whether substantially all of the QOFs assets are in a QOZ.
  • A “qualified opportunity zone business” must own “qualified opportunity zone property,” and “qualified opportunity zone property” does not include property purchased from a related party. But under the new regulations, it can include property leased from a related party, under certain circumstances.
  • By investing in a QOF, a taxpayer can defer recognizing capital gains for tax purposes until 12/31/2026. But if an “inclusion event” occurs before 12/31/2026, the taxpayer must recognize the capital gain at that time. Selling the interest in the QOF is an obvious example of an “inclusion event.” The new regulations provide many more, less obvious examples, like giving the interest in the QOF to a charity, or receiving a distribution from the QOF that exceeds the taxpayer’s basis.
  • After holding a QOF for 10 years, a taxpayer may exclude all capital gains from the appreciation of the interest in the QOF. The new regulations provide that the taxpayer doesn’t have to sell her interest in the QOF to benefit from the exclusion; the exclusion also applies if the QOF sells its assets and distributes the gains.
  • A ”qualified opportunity zone business” means a trade or business in which substantially all of the tangible property is “qualified opportunity zone business property.” The new regulations clarify that in this instance, “substantially all” means 70%.
  • “Qualified opportunity zone business property” means tangible property used in the trade or business of the QOF if, during substantially all of the QOF’s holding period for such property, substantially all of the use of the property was in a QOZ. Believe it or not, the new regulations provide that the first instance of “substantially all” in that sentence means 90% and the second instance means 70%.

The new regulations illustrate why tax lawyers so look forward to new tax legislation, and are so popular at cocktail parties.

Questions? Let me know.

The Real Estate Syndication Show: How To Do Crowdfunding Legally

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Raising money without begging investors is no easy task for startups. At times, help from a third-party individual is needed to make it happen. But how do you know if you are legally paying brokers to raise capital and not breaking any law or guides set by the Securities and Exchange Commission?

In this interview, Mark Roderick explains what a broker is, and the legal process that raising money entails. He cites examples of the repercussions of hiring an unlicensed broker-dealer, gives advice on the lessons he has learned in the industry, and touches on his blog that tackles crowdfunding.

 

The Real Estate Way to Wealth and Freedom Podcast

WEALTH AND FREEDOM PODCAST

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In this episode of The Real Estate Way to Wealth and Freedom, you will learn:

  • Crowdfunding – what it is and how it relates to real estate
  • Comparing and contrasting crowdfunding and syndication
  • How much money you can raise and who you can raise money from
  • Title 2, Title 3, & Title 4 crowdfunding – what to know
  • Predictions of how technology will impact real estate investing in the future

Questions? Let me know.

A Millennial’s Guide to Real Estate Investing Podcast

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On this episode of A Millennial’s Guide to Real Estate Investing, host Antoine Martel sits down with Mark Roderick, a leading crowdfunding, investing and fintech lawyer. They talk about blockchain, crowdfunding, the JOBS act, and how all of these things are going to be changing the real estate industry. Also discussed are the different types of crowdfunding flavors and how each of them work.

Questions? Let me know.

Crowdfunding & Fintech for Real Estate Podcast

CF and Fintech for Real Estate Podcast

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Technology has made it easier to raise capital for real estate deals. Since Crowdfunding has grown exponentially, John Casmon, host of the popular Target Market Insights podcast, invited me on his show to learn more about crowdfunding and fintech (financial technology).  On this episode, I talk about different ways to use the internet to raise money and the impact new technologies will have on the way we buy real estate.

Key Market Insights

  • Crowdfunding is raising money on the internet

  • Two versions – donation based (think Kickstarter) and equity based

  • Crowdfunding is online syndication with 3 flavors: title 2, title 3 and title 4

  • All crowdfunding falls under the JobsAct

  • Title 2 is very similar to 506c for accredited investors

  • Title 3 is very different, can only raise $1MM annually

  • Title 4 can raise $50 million

  • FinTech – any technology disrupting the financial services industry

  • Many believe banks should be a disintermediary

  • Roboadvisor apps are apart of FinTech

  • Online syndication is not more risky than traditional syndication

  • Anytime you take money, you can be sued

  • When done properly, you should not be exposed to any actual liability – even if they lose money

  • Blockchain technology could disrupt the real estate industry

  • Blockchain is a database or ledger that cannot be changed and has no central authority – everyone must consent

  • Title companies and other “middle men” could be pushed away through blockchain

Questions? Let me know.