Not A Token Gesture: Compensating Service Providers With Virtual Property

Questions surrounding the use of virtual currencies and other digital tokens ("tokens") as compensation came to the forefront last month following formal guidance from the U.S. Securities and Exchange Commission ("SEC") on token offerings.

Our previous client alert discussed the SEC's guidance on token offerings, also known as initial token offerings, token launches, token sales, or initial coin offerings ("ICOs"). Tokens represent a new method being explored by emerging companies, funds and corporations to raise capital, both quickly and from a broad investor base.

This alert discusses the U.S. federal income tax consequences to employees (and other service providers, including directors, consultants and other advisers) who receive compensation in the form of tokens. This alert does not address whether the tokens constitute "securities" under U.S. federal securities laws. Please see our previous client alert on the SEC's guidance regarding whether