The remainder of this discussion assumes that AVAX, and any Incidental Rights and/or IR Virtual Currency that the Trust may hold, is properly treated for U.S. federal income tax purposes as property that may be held as a capital asset and that is not currency for purposes of the provisions of the Code relating to foreign currency gain and loss. Shareholders are urged to consult their tax advisers regarding the tax consequences of an investment in the Trust and in digital assets in general, including, in the case of shareholders that are generally exempt from U.S. federal income taxation, whether such shareholders may recognize UBTI as a consequence of a fork, airdrop or similar occurrence or, if the Staking Condition is satisfied, Staking. Tax Consequences to U.S. Holders As used herein, the term “U.S. Holder” means a beneficial owner of a Share for U.S. federal income tax purposes that is: • an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; • a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof; or • an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. Except as specifically noted, the discussion below assumes that each U.S. Holder will acquire all of its Shares on the same date for the same price per Share and solely for cash or solely for AVAX that were originally acquired by the U.S. Holder for cash on the same date). As discussed in the section entitled “Description of Creation and Redemption of Shares,” a U.S. Holder may be able to acquire Shares of the Trust by contributing AVAX in kind to the Trust (either directly or through an Authorized Participant acting as agent of the U.S. Holder). Assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, such a contribution should not be a taxable event to the U.S. Holder. For U.S. federal income tax purposes, each U.S. Holder will be treated as owning an undivided interest in the AVAX held in the Trust and will be treated as directly realizing its pro rata share of the Trust’s income, gains, losses and deductions (including, if the Staking Condition is satisfied, any staking income). When a U.S. Holder purchases Shares solely for cash, (i) the U.S. Holder’s initial tax basis in its pro rata share of the AVAX held in the Trust will be equal to the amount paid for the Shares and (ii) the U.S. Holder’s holding period for its pro rata share of such AVAX will begin on the date of such purchase. When a U.S. Holder acquires Shares in exchange for AVAX, (i) the U.S. Holder’s initial tax basis in its pro rata share of the AVAX held in the Trust will be equal to the U.S. Holder’s tax basis in the AVAX that the U.S. Holder transferred to the Trust and (ii) the U.S. Holder’s holding period for its pro rata share of such AVAX generally will include the period during which the U.S. Holder held the AVAX that the U.S. Holder transferred to the Trust. The Ruling & FAQs confirm that if a taxpayer acquires tokens of a digital asset at different times and for different prices, the taxpayer has a separate tax basis in each lot of such tokens. Under the Ruling & FAQs, if a U.S. Holder that owns more than one lot of AVAX contributes a portion of its AVAX to the Trust in exchange for Shares, the U.S. Holder could designate the lot(s) from which such contribution will be made, provided that the U.S. Holder is able to identify specifically which AVAX it is contributing and to substantiate its tax basis in that AVAX. In general, if a U.S. Holder acquires Shares (i) solely for cash at different prices, (ii) partly for cash and partly in exchange for a contribution of AVAX or (iii) in exchange for a contribution of AVAX with different tax bases, the U.S. Holder’s share of the Trust’s AVAX will consist of separate lots with separate tax bases. In addition, in this situation, the U.S. Holder’s holding period for the separate lots may be different. In addition, if the Staking Condition is satisfied, any AVAX received as Staking Consideration that the Trust acquires will constitute a separate lot with a separate tax basis and holding period. Gains or losses from the sale of AVAX to fund cash redemptions are expected to be treated as incurred only by the shareholder that is being redeemed. However, when the Trust transfers AVAX to the Sponsor as payment of the Sponsor’s Fee (or, to the extent that the Staking Condition is satisfied, the Sponsor’s Staking Fee) or sells AVAX to fund payment of any cash distributions or of any Additional Trust Expenses, each U.S. Holder will be treated as having sold its pro rata share of that AVAX for their fair market value at that time (which, in the case of AVAX sold by the Trust, generally will be equal to the cash proceeds received by the Trust in respect thereof). As a result, each U.S. Holder will recognize gain or loss in an amount equal to the difference between (i) the fair market value of the
147
Made with FlippingBook - professional solution for displaying marketing and sales documents online