As we draw up plans for events and other functions that rely on funding, what happens when a grant recipient for, say, IRL Events receives a grant to organize an event? Presumably, they’d be granted an allotment of $APE to fulfill on their objective.
Most expenses, however, must be paid in USD. What happens when someone gets a grant in $APE but has to convert that to USD? Is there a third-party in place to make such a conversion so that the recipient doesn’t incur a taxable event on the behalf of ApeCoin DAO?
My understanding is that any grants moved from treasury to the recipient IS a taxable event, whether that’s in APE or USDC.
I imagine the current WG0 and SC working on governance, treasury, admin, legal etc might change that, but for recipients in the US it’s taxable.
You could request a direct payment to the vendors from the DAO so it skips your accepting any funds, but that might also get difficult to manage.
Thanks for bringing this up, look forward to what others may have to say.
Thanks @ssp1111. Would be unfortunate to incur a sizable tax burden for being essentially the facilitator of funds, especially those that the recipient in no way materially benefitted from. It’s one thing to get paid, and be taxed for that… it’s another to be essentially working on a DAO project and have to pay (potentially dearly) for that on personal taxes whilst receiving no compensation to offset those tax burdens.
I wonder what insight others may offer.
is it worth consideration to convert a small amount of our dao to usd? This is not saying I am for doing that, but asking for discussion purposes.
I think it makes a lot of sense for us to diversify our treasury. I don’t think people would be opposed to holding at least USDC and staked ETH on the balance sheet.
Asks in USDC are 100% better.
- Proposers then dont need to account for volatility.
- Makes tax liabilities for the recipients easier to manage post-facto since the receipt is in $ value than in $APE value.
I absolutely understand the impetus for the Ape Foundation to disburse whatever funds possible in $APE, so I wouldn’t emphasize a massive push for USD. But it’s something to consider, as my main thing is that folks aren’t disincentivized from participating and organizing based on the possible tax burden they’d be taking on by doing so.
Also, to your point @supriyo, USDC doesn’t really help solve anything, as you’s still need to convert that USDC you’ve been granted into dollars, which again is a taxable event.
The issue as it stands:
1.) You are awarded a grant to organize an event, that transfer of $APE to your wallet becomes a taxable event (in the US, at least), even though you are not benefitting monetarily from that grant in any way (it’s not a paycheck, after all, it’s funding to do work).
2. You now have $APE (or USDC even) in your wallet, but your vendors only take USD. You convert that $APE/USDC to USD to pay your vendors, you incur yet another taxable event in doing so.
How do we mitigate this? I don’t believe making event organizers (or other grant recipients doing work on behalf of the DAO) liable for shouldering the tax burden of doing the work is a viable long-term strategy for expanding DAO participation.
I made the mistake of requesting funds in $APE to be distributed over 3 months for our approved proposal AIP-88. The AIP process took a long time and the volatility of $APE from when I wrote the proposal to each actual disbursement was not worth what we originally budgeted to execute the AIP.
If possible we should provide options for disbursement. APE, USD, USDC.
$APE - for projects that give out or reward people in ApeCoin & don’t need funds for any other part of the project
$USD - projects that need to pay for products & services in fiat to execute. saves the extra tax, volatility, and fees from conversion issues
$USDC - projects that need more flexibility on how they convert the funds without dealing with the volatility of ApeCoin price.
$USDC is absolutely a better option than $APE from a tax / booking perspective (speaking first hand from managing our own internal treasury) . If you look at larger multi-month spanning proposals in other DAOs - they do learn towards final grants in absolute USD terms than readjusting it regularly before it passes or catching the short-end of the stick in a bad market.
When we spoke to the attorney’s about this issue for ApeComms, one of the options was to create a receiving LLC or C-Corp in the US to handle accounting, taxes, payroll, 1099’s etc, basically being the entity responsible for distributing monies.
SO, to your example of how to fund a Local Ambassador organizing an IRL Event without them being hit with taxes, perhaps the idea of ApeCoinIRL as the LLC/C-Corp could be the answer?
I’m sure there’d be other factors to consider, but we’ve been setting up Delaware LLC’s forever when it comes to tech startups, so it seems like a no-brainer.
Brilliant. What I had in the back of my mind was a third-party entity that might help intercept that taxable burden, but wasn’t sure about the realistic specifics of that option. Now I’ll need to look into this and get clearer. Looks like I’ll be drawing up an eventual AIP on this, thanks again.
Hi SSP - Does this mean that conversions into USD can be handled from ApeCoin side and they can allocate the funds directly to the event organizer? And/or directly to the vendors?
Thanks for your help!
Recipients are generally asked how they want their grant and generally most take it in USDC (to pay vendors, devs, etc). So yes, conversions can be handled by the Foundation.
However, it makes zero sense to have the foundation pay each and every vendor around the world directly as this would be an accounting headache and mess and better handled at the local level.
Also, the whole point of this Decentralized Events Network is to streamline and speed up funding to each and every event organizer – which means removing the Foundation from the weekly/monthly distribution of grants – which means taking custody of the entire grant upfront and managing the distribution and accounting of the entire effort.
It’s not perfect, but it’s one of the solutions that we’ve come up with based on spending over 250 days in the ApeCoin DAO --.
Keep in mind, every author has the freedom to set up their proposal the way they feel is best for their team/company.
Thank you so much for the info. Totally agree on the accounting headache if it’s up to the foundation to handle all of it lol ain’t nobody got time for that
And now, what I’m most interested in is the taxable implications on the recipient once they receive the funds from the DAO.
Let’s say you want to put on an event, and receive the USDC to do so from the DAO to cover the expenses of organizing the event. Now what? Simply receiving funds technically counts as a taxable event in the US (like every single time you claim your $APE when staking, for example), and then you’ll also incur a taxable event when you try to offramp that USDC into USD (since no vendors will presumably accept USDC… they want those sweet, sweet dollaz). So now you, the person who’s just trying to put on an event in service of ApeCoin, are now personally hit with two different taxable events for which you’ll likely be liable. All while not receiving any material benefit from those disbursements (they’re to be spent on the event, not payment, after all).
Working on a fix for this, possibly leveraging the Decentralized Events Group’s nonprofit status in some way to relieve the recipient from that burden. We really don’t want any surprises or to disincentivize organizers from participating.
Yep, the goal is to shield the Local Champions from as much tax liability as possible.
By taking on the grant in full, the initial tax event “should” be handled by ApeCoinIRL.
Depending on how each Local Champion has set up their group or individual status, they will most likely be liable for the conversion from USDC to local fiat - and if they are an LLC of sorts, this could be a write-off as normal business cost or something.
This whole “tax-event” from a grant is not spoken of much, so it’s good that we’re chatting in public.
Most receivers of ape have a corporate entity or are many just receiving in wallets as individuals?
Hey hey bigbull,
I’m sure most are creating LLCs or some sort of entity to manage their tax burdens. Also, many of the grants may have had direct funding to the end beneficiary, thus avoiding the author all together (EthGobal, PropHouses, etc).
I generally bring up this tax conversation any time I can just to remind folks to get some counsel, preferably before drafting a final AIP, definitely before accepting a grant.
I guess we could add GYATS to NFA DYOR - get yourself a tax specialist
I’m willing to be corrected on this one, but converting Ape to USD should not incur additional tax unless the Ape increased in value, in which case you are just paying tax on a portion of the profit you made and you will still be left with more than you received in dollar value. The other is income tax or donations tax, that will be payable, but the project should be able to deduct their expenses from it, so they should take that into account when requesting a grant. In general no one is going to pay your personal tax ever, so that has nothing to do with the DAO as such in my opinion, apart from possible liability of the DAO if the receiver fails to pay say donations tax, because in some jurisdictions the donor can then be held liable for the donations tax. But yes, check the receivers tax regime.
Will the transfer of APE from the treasury into dollars not be taxed for the DAO? In such a case, why not just refund grant recipients based on the proof provided?