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     5 years ago  

    Apologies for what is a really late reply (I was off steem for a while) but I have one giant tax question. Namely, how are DAOs themselves (including MakerDAO) taxed?

    Let's take MakerDAO for an example.

    It seems reasonable (and probably very attractive to the IRS) to treat it as some kind of general partnership, owned by MKR holders. After all, it sure looks like it's a bunch of investors deciding how to manage a shared account for profit. Crypto-wise, MakerDAO pays "dividends" (in the philosophical sense of the word) by buying back outstanding MKR with its profits.

    But that's the key word: profits. If MakerDAO is a general partnership, then would not those profits would pass through to MKR holders, regardless of how they are distributed? In the early days of MakerDAO, no one would care, because the amounts were so small, but currently MKR is profiting 10,000 DAI a day, based on daiauctions.com. Conveniently, that's approximately $3.65 million a year. And not one Form 1065 or Schedule K-1 is to be seen anywhere.

    Adding to this trouble is that instead of "collecting" DAI, it magically appears in the MakerDAO system, based on the current interest rates. So is that every block that new DAI is minted? Every second? Every day? Every time someone pokes the contracts to update the amount of outstanding DAI?

    And where is it? Is it just floating in the ether? (groan) Or wherever the Maker Foundation is registered? Is it anywhere that an Ethereum node runs? Is each individual CDP/Vault taxed based on where the owner is based? (How would one even find out?)

    I'm reasonably sure, by some reading of IRS publications, that MakerDAO would be required to file US tax forms if it had significant US income or US investors. It almost certainly has both. And who is supposed to file them? The Maker Foundation would be an easy target for the IRS.

    Which brings me to the more philosophical point that I can't see any way that MakerDAO gets away with paying no tax. If one could structure an entity as a "DAO" that pays neither corporate income taxes nor does its income pass through to its investors, everyone would do it. At which point the laws get rewritten and the practice is either banned or taxed.

    Still, I have no way to research this further as a layman, so I'm curious about any thoughts you have.

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