Legal Seminar, Denver, CO

071018 Discussion Draft

(nonrecognition for issuing corporate stock in exchange for cash or property); § 721 (nonrecognition of gain on issuing partnership interest for cash or property). This means the original issuer creates a tax obligation based on cash or other property received. d. Even if cryptocurrency is exchanged for another cryptocurrency, there is not clear basis to assert tax deferral through section 1031, governing like-kind exchanges of investment property (and effective in 2018, only real property). e. States will have to evaluate how these transactions are treated, particularly if nonresidents are involved. VI. New Regulatory Challenges: Drugs, Gambling, and Sales Taxes? Variations in state laws make purchases lawful in some jurisdictions, but unlawful in others. Electronic payment systems must be cognizant of these differences, particularly when they involve remote access. While a full treatment of this topic is beyond the scope of this introductory session, some relevant points are noted below. A. Marijuana. The so-called “Cole Memorandum” that announced a “détente”, if you will, regarding prosecution for providing financial services involving Marijuana dealers, has been rescinded. See Memorandum to All United States Attorneys re: Marijuana Enforcement (January 4, 2018), https://www.justice.gov/opa/press-release/file/1022196/download . An era of uncertainty continues here. 1. A little history. (The following historical discussion draws from Electronic Payments: Winnowing the Network and Avoiding the Shadows , A CLE program presented with co-authors Andy Schroeder and Ryan Hodge at the American Bar Association’s Cyberspace Law Committee Winter Working Group Meeting in January 2015.) Federal law proscriptions conflict with state laws that legalize distribution and possession, leading to legal risks that may outweigh business benefits from participation. a. The Federal government has chosen not to preempt state laws in this area by occupying the field of regulation of controlled substances. See 21 U.S.C. § 903. b. Federal government may not commandeer the states in requiring them to enact or enforce federal laws. See, e.g., New York v. United States, 505 U.S. 144 (1992). c. But Federal law remains extant, despite variations in state choices regarding its own legislative enactments or enforcement policies. See Gonzales v. Raich, 545 U.S. 1 (2005) (upholding constitutional challenges to Controlled Substances Act). d. Federal law not only proscribes against recreational use, but also medical use. This policy continued during the Obama Administration. See Office of National Drug Control Policy, http://www.whitehouse.gov/ondcp/marijuana (“The Administration steadfastly opposes legalization of marjijuana and other drugs because legalization would increase the availability and use of illicit drugs, and pose significant health and safety risks to all Americans, particularly young people.”) (accessed January 15, 2015).

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