KPMG's Crypto Strategy Reveals What's Coming Next with Tony Tuths
Tony Tuths is Principal of KPMG’s Alternative Investment Tax Practice and Leader of the Digital Asset Tax Practice. He joined me to discuss how KPMG is integrating blockchain and helping companies manage their digital asset businesses.
Topics:
- KPMG's crypto services
- Crypto tax and accounting
- Tokenization market
- Stablecoin attestation
- Blockchain and Crypto adoption
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⏰ Time Stamps ⏰
00:00 Intro
03:17 Tony's background
04:28 Discovering crypto in 2014
06:25 Crypto vs Blockchain
08:22 Adoption timeline
12:46 Stablecoin attestation
16:37 Handling different crypto assets
22:01 Senator Lummis Crypto Tax Bill
28:52 Staking taxes
30:31 Clarity Act
33:27 SEC & CFTC guidance
34:28 Tokenized assets
38:48 Big 4 companies crypto groups
44:18 Wrap up questions
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#Crypto #Blockchain #Tokenization #CryptoNews #Cryptocurrency #Bitcoin #BTC #BitcoinNews #ETF #News #Ripple #XRP #XRPNews #RippleXRP #Ethereum #EthereumNews #ETH #Solana #money #investing #trading #Altcoin #Altcoins #NFTs #Metaverse #Podcast #ThinkingCrypto =================================================
The Thinking Crypto Podcast is your home for the best Crypto News and Interviews - crypto, cryptocurrency, crypto news, bitcoin, bitcoin news, xrp, xrp news, ripple, ripple news, ripple xrp, ethereum, ethereum news, cardano, ada, solana, altcoins, defi, news, interviews, podcast, metaverse, nft, altcoin daily, cryptosrus, coin bureau, altcoin news, bitcoin today, markets, investing =================================================
Disclaimer - The Thinking Crypto podcast and Tony Edward are not financial or investment experts. You should do your own research on each cryptocurrency and make your own conclusions and decisions for investment. Invest at your own risk, only invest what you are willing to lose. This cha
Speaker 1: If you ask anybody in the leadership position at a
large financial institution, they know the answer. Yes, I'm going
to tokenize everything. All of my assets are going to
be on the blockchain. They see the future, they know
exactly where it's going.
Speaker 2: I'm curious how KPMNG as well as those clients are
viewing the technology or where we're at in the timeline.
Is it simply a proof of concept or they recognize, Hey,
this is the future we need to start building.
Speaker 1: Yeah, we're not full speed ahead yet, but we're definitely
well past the moment of inertia.
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Speaker 2: Hey, everybody, welcome into the Thinking Crypto Podcast. I'm your host,
Tony Edward, and joining me today is Tony Tutz, who
is the principle of KPMG's Alternative Investment tax practice and
leader of the Digital Asset tax practice. KPMG is one
of the big four professional account services companies in the world,
and Tony is a renowned crypto authority with over twenty
years of experience advising alternative investment clients on tax structuring
and digital asset strategy. Tony, great to have you, Thanks, Tony,
great to be here. Thanks for me having me here today.
Speaker 1: Yeah.
Speaker 2: Isn't it a bit weirre that we're both named Tony
and we're you know, it's going to be back and forth,
Tony Tony.
Speaker 1: That's all right. I love it, Love that Tony's out there.
Absolutely well.
Speaker 2: I'm excited for this conversation to dive into KPMG's digital
asset solutions and services and much more. I would love
to start with your background. Tell us about where you're
from and your professional background.
Speaker 1: Yeah. Sure, from the Northeast, born in New York, grew
up in New Jersey, still in New York, so I
never really went very far. I am a tax lawyer
by background, So even though I do work at a
professional accounting firm, not an accountant, not a CPA, I
am a lawyer. Yeah, and you know, I've been doing
tax advisory work inside the financial services realm my entire career.
I probably got into crypto around twenty fourteen ish and
never really looked back, you know, at KPMG. I mean
it really took off probably around twenty seventeen, and we
have ever since that time. I'm invested a large amount
of time and money into the practice. As you might
imagine that this scope of people out there who are
very well versed in accounting, tax and advisory, which is
our core functions, that also are very well versed at
crypto as not a lot of people. So there's the
fight for talent is it is fierce out there, and
you have to really know your way around. And so
we've done a great job of acquiring that talent here.
So it's been very good. That's amazing.
Speaker 2: So you mentioned you got into the industry in twenty fourteen,
so Tony, what was your first encounter and that aha
moment for you?
Speaker 1: Yeah, No, the aha moment came later, But the twenty
fourteen was really that. You know, my background, since I
was always in financial services when I first started in
this business, I'm going to age myself. But it was
that time where derivatives were becoming very big on Wall Street,
and the derivatives market, much like the crypto market today,
at that time, didn't have a lot of rules for
so we were trying to play not just in tax
but also with the SEC the CFTC, you know, basically
going by analogy, Well it kind of looks like this,
it kind of looks well, maybe we could treat it
like that. And then slowly but surely we got some
rules about that. And so I do got this large
financial product background, and so when crypto questions started to
come to the four, you know, people pointed to me
and said, well, you know it should be similar, why
don't you take a crack at it. So I did
start getting into it, but that was really from a
kind of tax wunk type of view. And then finally,
like I said, around twenty seventeen, things really started to
take off. I started to spend a lot more time
with it. I started to invest in it myself. I
should have invested in twenty fourteen, Tony. That would have
been much better and I wouldn't be working today. That's
another story, so but it did that. So basically, maybe
twenty seventeen the aha moment went off and you know
you basically and by the way, shame on me. I
should have recognized in twenty fourteen because I was focused
on crypto when I really should have been focused on
blockchain technology. Right, That's what I should have saw as
what's coming down the road. Forget crypto altogether. If you
look at our core financial services companies, I don't care
if it's asked at management, it's banking, it's payments, whatever.
It's all about distributed ledger technology and how that can
help that all those traditional businesses function at a much
more efficient rate.
Speaker 2: That's such a great point because I think sometimes we
put the card before the horse, where people are so
focused on the token they forget guess what. The token
wouldn't exist if there wasn't a network, a blockchain that's
actually functioning that you can build on. Right, and we often,
well majority of people look at the technology as oh
I can get this token, but they're missing the bigger picture.
They're missing the forest for the trees that the network
that it's working globally twenty four to seven, that you
can build on to change the way people transact with
each other and much more.
Speaker 1: Yeah. No, absolutely, in fact, for our more traditional clients.
So the large bold bracket banks, if you will, you know,
in the large asset managers for them not not you know,
disparage crypto in any way, shape or form, but they
don't care. They just don't even care about crypto because
that's really very secondary to their world with you know,
with the things that are happening now that's important to them.
They're going to tokenize the real world assets, stocks, bonds, currencies, commodities,
and they're going to run everything on blockchain. And you know,
for some of the things that they do, if you
think about it, you know, we're most people everyday people.
They think about stocks and bombs, Well, those already trade
pretty fast. Uh, there's room for improvement for sure, and
they will be tokenized eventually. But think about the things
that don't trade fast, the things that trade clunky, and
I'm talking about you know, bank loans, you know, clos
private equity interests. You know, try moving those you know,
those stack of documents takes weeks. You know, if I
can reduce that to seconds and I can put it
in a form that maybe I can post up some
third party is collateral for a loan. I've just introduced
liquidity where there was none. So you know, for the
traditional finance players, that's the big deal. Crypto is nice
to have, but that's not the prize. Yeah.
Speaker 2: Absolutely, And you know you mentioned a lot of the
firms that you're working with, and so far they're looking
to tokenize, they're looking to leverage blocking technology. I'm curious
how KPMG as well as those clients are viewing the
technology or where we're at in the timeline. I guess
is it simply a proof of concept or they recognize, hey,
this is the future we need to start building. It's
as if that, you know, when folks had that moment
with the internet, guess what, we got to start moving
our business online as well to get exposure.
Speaker 1: Is it at?
Speaker 3: Are we at that point?
Speaker 1: Yeah? We're not full speed ahead yet, but we're definitely
well past the moment of inertia for sure, because if
you ask anybody, anybody in the leadership position at a
large financial institution, they know the answer. Yes, I'm going
to tokenize everything. All of my assets are going to
be on the blockchain. So they see the future, they
know exactly where it's going. We're not quite there yet though,
because there's some implementing rules that they need, because most
of these entities that we're talking about, and at least
in the financial services sphere, they're regulated, highly regulated, and
so until each of the regulators clarifies what they're able
to do with blockchain, it's slowing it down. So we're
still we're trying to run, but our feet are still
in the mud. But I think that's probably twelve to
eighteen months of clearing up the mud and getting us,
you know, really getting some traction here.
Speaker 3: Pardon the interruption. Hi, I'm Tony. I'm the host of
the Thinking Crypto podcast. I wanted to ask you if
you can please support the podcast by hitting the like
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get your podcasts, please be sure to follow and hit
the five star rating. I'll let you get back to
the content. Thank you so much.
Speaker 2: Give us an overview of KPMG's different services that you
provide to digital asset firms and even are you leveraging
blockchain internally and things like that.
Speaker 1: Yeah, so the way that our client, first of all,
our service is right pretty simple. At the outset, which
is audit, tax and advisory, sounds fairly simple. But when
you break those open, what you'll see is like for audit,
for example, sure everybody knows if you have a financial
statement and people care about it, it's got to be
audited by a third party. We do that, but we
also do like internal control attestations. You might hear that
referred to as like sock onn sock too, So all
the service providers kind of need that. We even do
inside the digital asset round with the stable coin asset
reserve attestations things of that nature. So that's where the
audit at testation stuff is coming from. But even in tax,
I mean, we do tax consulting and tax compliance for sure,
but even inside of that it gets broken out into
smaller sectors. For example, you know, federal, international, state, and
local indirect tax, which is your sales tax, back tax,
things like that, transfer pricing, valuation, and like I said,
for the past you know, eight nine years, I've been
hiring people all around the globe, so it's not just
the United States, it's a global operation. And I've been
hiring people with digital assets, specialties and special knowledge in
each of these areas. So if you think about that,
that's a lot of people. And then finally on our
advisory side, which is consulting, I mean that's everything from
you know, strategy consulting, operating models, compliance and regulatory consulting.
Building out and this is a big one by the way.
People don't like to hear it, but it's true, building
out the B SAAA, M L or KYC. You know,
even though you're on chain, these things still really matter.
You still have to you know, get people's information, know
who you're dealing with, make sure we're not dealing with
sanctioned people and entities. And then finally, as we start
doing like real world asset tokenization, enablement and integration become
really important. Right because when you look inside pick your
largest bank in the world, you'll see like myriad of
systems that they have to track all their assets and
do all the operations that they have to do. And
now they're doing things on chain and they need to
get that on chain information into the legacy system so
they can do their regular reporting and everything, or vice
versa as the case may be. But that's a huge challenge,
and so Advisory Group is doing all that kind of
stuff and then of course custody and security huge have
to be able to do that. So being able to
get these institutions to be able to do things within
their regulatory framework and do them safely and do the
reporting that they need to do. All you know, to
any stakeholder, whether it's a shareholder or it's a regulator,
are taxed. So that's where KPMG is helping inside each
of those side hopes. Yeah, that's incredible.
Speaker 2: You know you mentioned the onset attestation for like stable
coin issuers, and I know you know that's been a
pain point in the early days of the crypto industry.
But now to your point with the regulators, you know,
putting out the guidance and and the rules of the
road and so forth, these your services are going to
be so important because I often state, you know, don't
trust verify right, especially when it comes to digital assets.
So it's really great that you're helping a lot of
firms to do that and there can be more transparency.
Speaker 1: Yeah, that was one of the one of the key
things that were in the Genius Act was you know,
with what normal people are responsible people in this space
always thought you should have anyway, right, I should have
some third party verify that these assets are here, and
hopefully you're also even verifying that the issuer is meeting
all of its requirements and has its loan, internal controls,
and it's doing everything right on its side. So in
the end, that's part of what Genius brings as a requirement.
Speaker 2: Now, I know you can't give names of the clients,
but I'm curious what type of companies and industries and
these folks are working or leveraging your services.
Speaker 1: Yeah, so at this point I believe it or not.
I mean, yes, it was just really the financial institutions
and and even within financial institutions, really the big users
of our services on early days. As you might imagine,
We're the venture capital funds that were investing into this space,
and the hedge funds that wanted to trade the liquid
tokens that was those were the big users. But at
this point it runs the gamut everything from like the
development the blockchain development and app companies, uh, the infrastructure
and security providers, you know, the mining companies, the staking providers. Now,
of course we have these digital asset treasury companies. They
suck up a lot of time, but those are great clients,
by the way. Public companies, we love that kind of stuff.
The asset managers, both public and private, by the way.
So it's nice that we've been doing public funds outside
the United States for several years now, but as you know,
right now in the United States we have public funds.
That's great, but we also do the private funds, like
I said, and then of course banking and payments that's huge.
That's a big space for that right now. But it
also believe it or not, it routinely now, I would say,
not just spotty, routinely. We are speaking to fortune two
point fifty global enterprise type of clients as they start
to use some form of digital asset in their own
business model. And it is happening regularly.
Speaker 2: So safe to assume you guys have been seeing a
lot of demand, I'm sure, especially over the past here
you know, obviously we've been in a much more friendlier
environment for crypto here in the United States. But I
know you you're a global business. But even the EU
they passed the MECA regulations. I'm sure there's a lot
of demand for your services. Yeah, and it is a
global operation, and so you know some of the so
implementing things like MICA and KARF by the way, which
is an OACD reporting requirement, that's full steam ahead. We've
been doing that for a while now, we're doing that today.
A lot of the US regulations, believe it or not,
even though we hear about them all the time, they're
not quite big, implemented yet or on the path to
doing that. So we're doing some of that in the
United States as well.
Speaker 1: You know. Funnily enough, in the last administration, we ended
up by demand helping clients some move out of the
United States, and now given the current administration, we're moving
them back to the United States. But you know that
as main it's busy time to many, as you might imagine,
busy time all around from like you said, from the
very smallest companies, the ones that have the ideas that
are developing their tech companies you know, to pick your
nice fortune two fifty companies. So it's it's robusts for sure.
Speaker 2: And how are you handling the different blockchain networks, the
different types of assets internally, because it seems like it's
a lot to handle, right, because there's so many blockchains
out there, Tony. Obviously there's your top ones like Ethan,
Salona and much more. Plus you have stable coins, plus
you have tokenized assets, plus you may have NFTs and
name coins and all these things. How are you handling
all of these differ and components.
Speaker 1: Yeah, so you know, we we end up having to
do a few things. One, having a group of people
who just stays on top of this, right, because things
are changing every day. The interoperability is an issue for
our clients and it's something we try to help with,
but it impacts us on a different way, which is
especially on our audit side. Right, if there's a new
chain here or there, there's a new token, if it's
not supported by our tools, well then we can't verify it.
We can't you see it, and that's not acceptable. And
so what we've done at KPMG is we found that
outside tools, it's just too hard to use you'd have
to pick up so many of them and keep on
top of them, and then of course we'd have to
verify that they're working correctly. We said, forget it, we'll
build our own. So long ago we built our own
blockchain explore. We call it chain fusion. This allows us
to actually just go on chain and you know, we
when we have a team of developers that's constantly updating
that for everything that we need so that we can
see things and do things. It also the the way
things are rapidly evolving and that not everything is on
the same chain kind of thing also creates another problem
for us, which is for our clients too. For those
regulated clients who hold those assets, a lot of them
have to hold it in in what's called the qualified custodian.
But then what happens is if it's new, the custodian
didn't update their system, so the qualified custodia can't hold
the asset and they end up having to hold it
you know what we call self custody. Auditors hate self custody, right,
it's just too it's dangerous. So you know, we that's
something we are all dealing with, you know, as an
industry and hopefully we get to a place one day
where you know, it's a little more generic interoperability and
we don't have those kind of one off problems. Yeah,
for sure.
Speaker 2: And it's really great to hear that you guys, guys
have built your own proprietary blockchain explorer, because I'm always curious,
you know, how firms like yourself handled that. You know,
even myself as someone who's in crypto every day, to
keep up with all these things, it's just a lot
of work. But I guess that's where you mentioned earlier,
you're hiring folks across the globe to help you do
all these things.
Speaker 1: Yeah, and you know, if you think about our business,
you would think the people that we hire are all,
you know, tax or audit type people one tape or another.
But here's the know you know, and there's other examples too,
But this is a prime example where I have to
go out and I have to hire engineers. I have
to hire people who are blockchain specialists. They may not
know anything about auditing or tax With that, it's okay,
I need their services here. So yeah, no, it's definitely critical.
Speaker 3: Are you leveraging AI in any way to help you
do all these.
Speaker 1: Yeah, So AI is in everything that we do. I mean,
I mean not just in this space as you imagine
any professional services firm. I don't care if you're a
law firm, accounty firm, architecture. From the way the business
model is, you know, your time times your rate equals
your revenue. So anything you can do on this to
bring the time down goes right to the bottom line.
So yes, I mean it's a it's a huge focus
and trying very hard. I mean, one of the things
that AI is really cool, but you know a lot
of the tools that are out there in the market
we really can't use and not a lot of people
like us can't use because we have sensitive client data
that can't be shared and so and then also the
other issue with the large language models is that you know,
it's scraping data from things that might not be correct,
and so you end up building your own propriet harry
type of AI tool. We are not alone in that,
all the big four doing that. Luckily, you know we
started early. We've got a pretty good way down. But yes,
to answer your question, it's integrated and everything we can
do and wherever we can see a spot to add
efficiency by using it. Yes, and this is a great actually,
as we were just saying, you know, things here move
so fast and there's so many new things, and you
try to keep up as much as you can. But
I can have AI screwing data from all over the
places and synthesizing that for me so that every morning
I can get a nice reports and you know, here
are some of the new things that you know hit
the market today, and you know, basically save a little
time that way, and then try to pick out what's
really important for us.
Speaker 2: Yeah, it's running twenty four to seven, doesn't need to
sleep or eat, and I could have that submarine ready
for you when you're ready to clock in.
Speaker 1: Yeah. No, And I think you know some of our clients,
especially in asset management in banking, you know, people who
do risk control and things like that. The twenty four
seven trading idea, while it's fantastic and I know that
does a lot of great things, it also has a
bad thing, which is, you know, for markets, do you
have the right systems in place to risk control for
trading outside in normal hours? And you know, how how
are you handling that from a risk perspective? And so
AI is really good for that, because you know, you
can set parameters for things to trade or not trade,
or block trades, whatever the case may be, so that
if you're sleeping or something, you know, you can at
least avoid a disaster. Yeah. Absolutely.
Speaker 2: I would love to get your thoughts on Senator Lumis's
crypto tax bill and the implications that would have on
the digital asset taxation and reporting and much more, because
a lot of these things are still being sorted out
and we're still waiting here in the United States for
concrete rules and for these things to be passed.
Speaker 3: What is your take on her proposed bill.
Speaker 1: Yeah, well, first of all, it's very welcome, Thank you,
Senator to Lumis for doing this. You know, this country
as a whole is behind in regulating digital assets versus
the world, which is said, but we are where we are.
But that's in you know, normal regulations like sec CFTC.
You can see how that's moving along. Sol Liba Shortley's
getting there. Tax almost nothing, We've had almost nothing in
the way of tax regulation here. It's certainly tax legislation.
So there's three things happening right now. One is the
Loomis legislation. Obviously, that's in the Senate. Great there's also
a representative Max Miller and Stephen Horsford in the Congress.
That's not really legislation. They put out a thought piece
on that. It's that they're taking comments on and then
they'll put it into a bill. And there's some really
great stuff in there. And then, of course we just
had over the past summer, the President's Digital Asset Working
Group put out their priorities and you can see each
one of those priorities is being acted upon right now,
and so all of those have tax components. So yeah,
the ones that are in there, I mean, believe it
or not, the bulk of these pieces of legislation are
like the brick and mortar stuff, like the plain obvious stuff.
I don't have rules right. For example, I think everybody
who trades crypto is very well aware that you know,
the washstyle rule does not apply to crypto, not because
it's a great loophole, it's just when they wrote the rule,
crypto didn't exist, so it's not in there. But and
so there's a ton of pieces in the tax code
like that, where it says when you're reading the text
of the statute, it says when you do this with
stock or securities, and it's repeated all over the code.
Every time that statute says stocker securities, you can't use
that piece. And sometimes that's hurtful, sometimes it's helpful, like
in the Lost help So there's a little bit of
fixing that. And so most of these pieces of legislation
are just going through and they're taking those little underlying
things like for example, when asset managers trade assets from
within the United States for people who live outside the
United States, we never say, oh, you know, you foreigner,
you're all of a sudden the US taxpayer because you
had a US asset manager managing your assets. We never
do that. And the reason we don't is because in
the tax code there's a safe harbor that says, well,
if you're trading stocker securities, that doesn't bring you into
the US. Well, it doesn't say that for crypto. So
it's a big problem. Now we've worked around it in
the interim, but this tax legislation would say, you know,
you would just fix that, we'd add that, Yeah, crypto
at too, you can't do that. Also, you know, we
all lend crypto. If you trade CRYP, you lend crypto,
and that there's a there's a rule that says that
lending stocker securities out doesn't cause a taxable disposition. Again,
doesn't apply to us, so we've been working around in
the interim. But this rule, these rules will fix that.
So a lot of good stuff there just brick and
mortar stuff, but there's also some very specific stuff for crypto,
which is great. Which is each of these pieces of
advice or legislation, as the case may be, they call
for deminimous exemptions, which is great because people always said
since the beginning of crypto, well, if I go out
and I buy a cup of coffee with bitcoin, you
shouldn't tax me on the bitcoin. Now, I don't know
if anybody is actually using bitcoin to buy coffee anymore.
I would use a stable coin. But be that as
it may, you do find those that in the legislation
that there is some deminimus exemption. People have also been
calling for no taxable gain or loss. If you have
to dispose of a digital asset to pay gas fees.
They think about it, You know, why are you doing
that to me? I had to pay gaspies I was
I wasn't trying to profit or you know, from my
crypto is just paying gaspees like I had to. So
those are in the legislation. That also one of the
things that the US did put out some rules a
year or so ago on crypto. It's not the ones
that most people think about, though, it's the ten ninety
nine reporting. So people just now probably just got their
ten ninety nine DA from their exchanges they trade on
centralized exchanges. One of the things that maybe got overlooked
in that rule was the ten ninety nine DA reporting
actually does apply to stable coins, which is weird. Why
do I have to report on stable coins because if
I sold it, it was I bought it at a dollar,
I sold it at a dollar. Why do you make
me do this? But the truth is is minor mighty
little penny penny, you know, differences here and there, and
it gets picked up and nasby reported should not be
and so that's also in this legislation. Let's fix that.
Let's not have this reporting for stable plans and that
kind of thing. So there's some good things in there,
and there's also like maybe other things that you don't
think about but are real, which is people sometimes donate
their crypto to charity. That's right, right, should be easy.
But believe it or not, you have to go out
and get a qualified appraisal if it's over five thousand dollars.
Why would you need to do that when I can
just look on you know, some exchange and get the price.
I have no idea. That is the rule. So this
legislation would change that as well. So there's a myriad
of little things in there, but all of it is
really good. Each one of those things. The President's Working Group,
the Miller Horsford Bill, and Lewis, but they're all a
little different, but they're trying to get out a lot
of the same things. So hopefully there will be you know,
some they'll bring it all together and we'll get a
good bill out of it. One of the really nice
things about that Miller Horseford Bill is the they have
a provision in there is you're mining and staking rewards
that you have a choice. The base rule is they're
not taxable upon receipt, which is the current IRS rule.
They're rather they're not they're taxable only when you sell them.
That's great. That's in the Loomis Bill too, by the way,
But they add another provision which is an election. If
you want to elect to be taxable upon receipt, you can.
And you might say, well, why do I want to
do that? The reason is, if I get a staking
reward today and it's worth ten dollars, but I believe
in a few months from now it's going to be
one hundred dollars, i'd rather get taxed on the ten
now at ordinary income rates, and then later when I
want to sell, I'll get tax capital gain rates. So
that's great that that electivity is fantastic, and kudos to
them for thinking of that and putting that in there.
Speaker 2: That's such a great point. I didn't think about that
because I do steak myself, and if I can get
tax at the lower amount, especially like in a bear
market like we are right now, that would be ideal
versus in a bowl. But dumb question on my part.
So when I sell, is it a capital gains tax
even though I didn't necessarily invest anything, it's just a reward.
Speaker 1: Yeah, that is a great question, Tony. And yeah, the
way tax policy works is anytime you get something without
an exchange, it's got to be ordinary income. That's a
very generalized statement, but generally true. And so Yeah, so
in staking rewards, if you didn't elect to pick it
up at income upon receipt, if this rule goes into
place later when you sell it would be ordinary income.
So again another another incentive to maybe elect to get
taxed earlier on the ordinary income to get capital gained later.
But either way, I mean, hey, great to have the electivity,
you know, And there's a lot of people in the
market for things that their motives are different. I mean,
if you're a publicly traded mining company, you have this
issue right now where you know you're getting taxed on
all these the mining rewards as they come in, you're
going to hold them for a long time. And they're
publicly traded, so they have these, you know, publicly available
financial statements and it's making you a little wonky between
the book and the tax. So for them, they would
be that person or that entity that would say I'm
not going to be taxed till I sell it. But
for you and I, we might make a different choice.
Speaker 2: Yeah, and it's great, Like you said, it's great to
have that option, and this bill is much welcome and
hopefully they can get that through this year. I know
right now we're still waiting on the Clarity Act to
get sorted out in the Senate. Did you have any
thoughts on the CLARITYAC You know the impact that would
have on the industry and adoption, and now you know your.
Speaker 3: Best guest could have passed this year.
Speaker 1: So I think it's tough tough to get it to
pass this year. And the obviously reason for that is
it's we have midterm elections coming up in November, and
so you're really the only chance for it to pass
this year is for them to do something between now
and in May, otherwise forget it into the elections. But
there is another possibility in the lame duck session after
the elections. Sometimes things passed in that little period, but
who knows. But thankfully, though you might have noticed in
the past couple of weeks the Paul Atkins and Michael
Sillig so sec CFTC Chairman's came out they're working together.
They have a memory animate understanding between the two institutions.
They put out some rules just this past week at
the DC Blockchain Summit. They came out and said, hey,
here's how it's going to work, and basically it's Clarity
is the Clarity Act. They're jumping the gun and they're
just doing it regulatorily, which is nice, but obviously still
want legislation so that the next chairman of the SEC
doesn't come in and just rewrite it. But they're they're
already going ahead full speed with this and so and
it is clarity because when you read down to clarity,
and what it tries to do is say this is
a commodity, this is a charity. Well that's what they
just came out with saying that the SEC is only
going to do uh, token ised securities and investment contracts
that is, anything other than that is going to the CFTC.
And then the next part of clarity is, hey, how
do how do we do registrations? Uh if we are
a security or we are an investment contract, but then
we want to evolve into a decentralized platform and have
a commodity. Well they have that right, they have their
they have exemptions from registration or they have light registrations
for funding. And then they have a provision in their
safe Harbor that they're putting together here that the agencies
that once you are decentralized, you can you know, tell
the SEC and you will just drop out of SEC
regulation and you'll go over to the CFTC. So all good.
I think that's all passing into to your question, what
is this going to do for the market. Uh? Really
that is needed to allow capital to really start to
flow into this space and allow some of the more
regulated counterparties to jump in and play a part in that,
because you know, it's one thing for VC funds to
do it, you know they're lightly regulated. It's another thing
for a large fedial deposit insurance type of institution to
do it.
Speaker 3: Yeah, great point, and fingers crossed they can get that
done this year.
Speaker 1: That would be amazing.
Speaker 2: But I know, you know the sausage making process in
DC it's not easy sometimes, but we made a lot
of progress. But to your point, you know, it was
an excellent point that the meat and potatoes of what
would be in the Clarity Act, the SEC and the
CFTC are doing, which is great. They're putting out that
guidance and rulemaking and we just need the rubber stamp
of approval from a macro perspective with the Clarity Act
in place, but the regulatory agencies, if they're giving the
green light, I think that's that's.
Speaker 1: Okay, and By the way, this is not an accident, right,
I think you know, the White House and the agencies
recognized that, hey, you know, Clarity just might not make
it this year, but let's not hold it up. Let's
keep it going. And so the business is the rate
related entities. That's all they need, right to operate. All
they need is to see if they're regulators, the cft
SEC and the OCC in some cases to say you
can do this. And by the way, kudos to the OCC.
They came out early. They're like, go ahead, you guys
can all do it. And so now that the SEC
and the CFTC are going to bless this in an
official way, everybody can start doing business. And if the
Clarity Act has to come next year, that's okay. It's okay.
At least we can we can keep going. Absolutely.
Speaker 2: I did want to ask you about tokenized assets and
how how that is changing the way you're approaching as
as a company reporting on these things. Because you have
the traditional setup, right which currently exists of stocks and equities,
even gold, but those assets are now being tokenized. Does
it does a tokenized aspect make it more complicated or
easier in different ways as far as reporting regulation and
much more so.
Speaker 1: At the base case doesn't change anything, right, So if
my tokeniz is a sheriff's stock, still a shriff' stock
and all the same roles apply. So that's one. But
when you dig down a little bit deeper, what ends
up happening when you tokenize it? Not all the time,
but sometimes it allows the market participants to do something
different with it. So now I tokenize the stock, I'm
still treating it as a shaff stock. I'm still going
to report on it just like it's a share of stock.
But now someone in the market is going to take
that and they're going to put it into a DeFi
platform or something. Well, now what do I do with it?
It's still a share of stock? But what was that?
And for us on the tax side and by the way,
on the audit side too, for a book purposes. So
when we transfer an asset into a DeFi protocol, did
we dispose of it? Like do you de recognize that
asset from your balance sheet and then recognize a new
receipt token or no, do I still own it? And
then from a tax perspective, same thing, did I dispose
of it? Do I recognize gain or loss or did
I just lend it out? Did I do I have
the right to get it back? You know what is that?
And then if does rewards accumulating inside the DeFi protocol,
which is usually the case, do I pick those up
real time right now? Does it go into the price
of the token? Do I recognize it later? So and
these are all these are hard. Those are really hard questions.
And by the way, all of these pieces of legislation
out there in the world, the one thing that they
have in common, they basically kick the can down the
road on DeFi principally because we've got to get rules
out as fast as we can, and DeFi is really hard.
So we're going to come back to that. It's in
every piece of legislation, not just in the United States,
all over the world. That's the issue.
Speaker 3: That's Yeah, to your point, that is a very tough one.
And I see a lot of the regulators still struggling,
not because they're anti DeFi, but just the educational aspect.
And in addition, how do we make this work. It's
a complex topic because.
Speaker 2: Maybe we're not there yet to go, you know, even
for percent of the way with DEFIVE let alone, one
hundred percent. So it's it's tough, especially transitioning a lot
of the incumbents and you know, the current system over
to that.
Speaker 1: Yeah, and you know what I was saying earlier, you know,
when I started off my career and we were doing
this in derivatives when we didn't have rules. It's kind
of the same. Like I remember back in those days,
everybody digging through the actual contract for little bits of
language to try to decipher, for example, was this a
disposal of the underlying asset? What was I lending it?
Is this an option? Is a swap? Is it a
futures contract? And you know I see that here too.
People are making that, you know, for lack of any
other tool. They're trying to get into the technology and
dig down there and say, well, in this technology, the
way this protocol works, the way it's written, here's what's
going to happen. I think we need to get to
a place where we was in Ah, I'm not reading
code in order to come up with the right tax rule.
Let's have some bright line rules like if it did this,
it's treated like that? Is that a treat like that?
Because trying to get behind you know, a smart contract
is not the place for a lawyer. So we'll get there.
We'll get there. But yes, that is that's going to
be secondary. And in the meantime, there are people like
my tax professionals I have a KPMG who have just
spent a ton of time with this and they see
what market participants are doing. We take a look at
what the tax risk is and we all come to
an understanding of listen, we don't have rules, but here's
how the industry is going to treat this for now
until we do. Because what I say was when you
don't have rules, especially a tax if we don't have rules,
well let's all get together and go with the herd.
Don't be an outlier, right, So if we're wrong on it,
let's all be wrong together. We'll fix it going forward.
Speaker 2: So on that note, and I don't know if this
makes sense. Are you is KPMG in any type of
group or consortium with maybe even your competitors or other
industry players to try to figure these things out.
Speaker 1: Yeah, So all of the Big four do take part
in industry groups. So we write help them write papers
and put their position papers together so when they go
down to Congress, you know they can or or it's
in front of a state regulator, whatever the case may be,
that they are able to you know, advance their position.
And so we all we all do that. Obviously, we
don't lobby ourselves, we don't do that, but we certainly
help them to do it, of course, and we are
routinely asked by you know, like the Senate Finance Committee
and the tax writing committees that you know, come down
and speak to them more educate, educational and by the way,
great great for them that they invite us down to
do that. I mean, they want to learn, they want
to know, you know, so they can whatever rules they
do end up writing, they can at least be thoughtful
about it.
Speaker 3: And Tony, what's on your roadmap for this year as
it relates to digital assets?
Speaker 1: So you know, there are still believe it or not,
people say, well, you know the Genius Act that's done
the past, Well it did, but they implementing regulations are
and hear that, and so we're still working through that.
So the implementing regulations have to be out by July
eighteenth this year. So obviously you know we're working through
that process. And that's a big deal because you know, yes,
we want stable coins, and we want regulated stable coins
on the one hand. But the other thing that it
does do is once these hopefully it will do when
these regulations come out in July, is that it is
going to treat payment stable coins, which is a defined
term on the genius sect. It will treat them as cash.
And that does a lot of things for us on
the accounting side, and it does a lot of things
for our regulated banking clients, you know, for on their
balance sheet and on their risk weighted assets, if they
can list that as cash or cash like item, it
does a lot of things for them. And so it
will increase the use of stable coins greatly after that.
So that's certainly one thing that's on the horizon here.
The other thing that we're trying to deal with, and
it's still going, I believe it or not, is the
ten ninety ninety eight reporting in the US. We just
had our first ones. If you didn't get your ten
ninety nine dya, that's because it was a screw up.
If you've got your ten ninety nine DA and it
was wrong, that's a not a mistake, that's a feature.
I mean, it's not working the way it's supposed to
work right now, and so we've got a lot of
work this year to do to work on the ten
ninety nine reporting because next year it will have tax
bait where it's supposed to have tax basis on it.
This year was just gross pro season. It sounds very simple,
but there's a lot of work behind the scenes to
make that happen correctly. And then of course, the big
big thing that we're also working on is so KARF
is live. KARF is the Crypto assid Reporting Framework in Europe.
It is live in many countries, not in the United
States yet, but the United States will go live with
that in twenty twenty eight and that's a big lift
for us too to get all those regulations and get
the process us in order so people can be able
to report to that. So that's another thing that we're
working on in that space. But yeah, I mean, it's
a it's a never ending cycle of things here that
we're that we're constantly working on. And then like I said,
new things just keep coming to the market, and uh,
you know, we have all these digital asset treasury companies
now and they have their own unique issues that we're
trying to deal with. Because they're publicly reporting entities. Uh yeah.
And then uh, you know, inside the asset management space,
good and bad. But I do find you know, what
we have in the United States for asset management, as
people are going to access digital assets, we have exchange
traded products ETPs. People call them ETFs, but they're not
really ETFs, right, So we're trying to get that rule
adjusted so that they can be ETFs. It will make
life easier for everybody. So that's something that we're working
on now too. And then one of the things they
think within asset management that is fantastic are these, you know,
the notion of vaults that people can have, you know,
you know, put put stable coins into vaults that may
be curated, maybe autonomous, and just let them trade. And
you know, but then of course being able to report
on that and get your castes ready from that, it's
like just a new frontier for us, another thing to do.
Speaker 3: You got lots on your plate, but it's all great
stuff and all important things for the progression and the
you know, the infrastructure being built.
Speaker 1: Out absolutely yeah no, and it's exciting and it keeps
you know, the people that work for us, you know,
entertained and allows them to really, you know, express some
creativity in this space. So it's fantastic and hopefully we
are helping the economy move forward and helping you know, productivity,
and hopefully we'll get to a place where you know,
more and more people can utilize the financial infrastructure that
we have in the United States. One of the great
things I find about digital assets is the democratization of finance.
You know, there's a lot of people around the world,
you know, you take it for granted that you have
a bank account, you have a you know, you have
a debit card, you can go do things a lot
of people do not, and so for them to be
able to access that from a mobile phone is just
phenomenal for them. Oh absolutely, all.
Speaker 3: Right, Tony, I got some wrap up questions here for you.
The rapid Fire. First favorite food, deld Palm, I'm Italian though,
Favorite musician or band, Oh Rolling Stones?
Speaker 1: That wants an easy ones? Favorite movie, Oh deez, Iconic?
How about well I show my age but breakfast club?
Favorite book? You know, Ever since I went through law school,
I used to read, but ever since I went to
law school, all I do is read for work. So
my favorite book is the tax code. Now, that's what
it is.
Speaker 3: When you're not working, what are you doing for fun.
Speaker 1: Health and fitness. I am a fitness fanatic, so if
I have free time, that's what I'm doing.
Speaker 2: Tony, absolute pleasure. I love what KPMG's doing and certainly
one of the key pillars right in providing the reporting,
the verification and all these things that are important for
this asset class to grow. And I'm looking forward to
the future updates. So thank you so much for joining me.
Speaker 1: Thanks for having me, Johnie appreciate it.
Speaker 3: Thank you so much for tuning in. Please hit the
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so much.