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 SUI 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 SUI will begin on the date of such purchase. When a U.S. Holder acquires Shares in exchange for SUI, (i) the U.S. Holder’s initial tax basis in its pro rata share of the SUI held in the Trust will be equal to the U.S. Holder’s tax basis in the SUI 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 SUI generally will include the period during which the U.S. Holder held the SUI 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 SUI contributes a portion of its SUI 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 SUI it is contributing and to substantiate its tax basis in that SUI. 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 SUI or (iii) in exchange for a contribution of SUI with different tax bases, the U.S. Holder’s share of the Trust’s SUI 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 SUI 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 SUI to fund cash redemptions are expected to be treated as incurred only by the shareholder that is being redeemed. However, when the Trust transfers SUI 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 SUI 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 SUI for their fair market value at that time (which, in the case of SUI 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 U.S. Holder’s pro rata share of the SUI transferred and (ii) the U.S. Holder’s tax basis for its pro rata share of the SUI transferred. Any such gain or loss will be short-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SUI is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for its pro rata share of the SUI is more than one year. A U.S. Holder’s tax basis in its pro rata share of any SUI transferred by the Trust generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SUI held in the Trust immediately prior to the transfer by a fraction the numerator of which is the amount of SUI transferred and the denominator of which is the total amount of SUI held in the Trust immediately prior to the transfer. Immediately after the transfer, the U.S. Holder’s tax basis in its pro rata share of the SUI remaining in the Trust will be equal to the tax basis of its pro rata share of the SUI held in the Trust immediately prior to the transfer, less the portion of that tax basis allocable to its pro rata share of the SUI transferred. A U.S. Holder’s receipt of distributions of cash proceeds from the sale of SUI (other than in connection with a redemption) should not, itself, be a taxable event to a U.S. Holder. As noted above, the IRS has taken the position in the Ruling & FAQs that, under certain circumstances, a hard fork of a digital asset constitutes a taxable event giving rise to ordinary income, and it is clear from the reasoning of the Ruling & FAQs that the IRS generally would treat an airdrop as a taxable event giving rise to ordinary income. As described above, the Sponsor has committed to causing the Trust to abandon all Incidental Rights and IR Virtual Currency to which the Trust otherwise might become entitled. If, however, the Trust were to receive and retain IR Virtual Currency in the future, a U.S. Holder would have a basis in that IR Virtual Currency equal to the amount of income the U.S. Holder recognizes as a result of such fork or airdrop and the U.S. Holder’s holding period for such IR Virtual Currency would begin as of the time it recognizes such income. Similarly, although the IRS has not issued similar guidance with respect to staking, if the Staking Condition is satisfied and the Trust were to receive any Staking Consideration in connection with Staking, it is likely that a U.S. Holder will have a basis in any SUI received as part of such Staking Consideration equal to the amount of income that the U.S. Holder recognizes and the U.S. Holder’s holding period for such Staking Consideration will begin as of the time it recognizes such income. U.S. Holders’ pro rata shares of the expenses incurred by the Trust will be treated as “miscellaneous itemized deductions” for U.S. federal income tax purposes. As a result, a non-corporate U.S. Holder’s share of these expenses will not be deductible for U.S. federal income tax purposes. On a sale or other disposition of Shares, a U.S. Holder will be treated as having sold the SUI underlying such Shares. Accordingly, the U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the amount realized on the sale of the Shares and (ii) the portion of the U.S. Holder’s tax basis in its pro rata share of the SUI held in the Trust that is attributable to the Shares that were sold or otherwise subject to a disposition. Such tax basis generally will be determined by multiplying the tax basis of the U.S. Holder’s pro rata share of all of the SUI held in the Trust immediately prior to such sale or other disposition by a fraction the numerator of which is the number of Shares disposed of and the denominator of which is the total number of Shares held by such U.S. Holder immediately prior to such sale or other disposition (such fraction, expressed as a percentage, the “Share Percentage”). If the U.S. Holder’s share of the Trust’s SUI consists of separate lots with separate tax bases and/or holding periods, the U.S. Holder will be treated as having sold the Share Percentage of each such lot. Gain or loss recognized by a U.S. Holder on a sale or other disposition of Shares will generally be short-term capital gain or loss if the U.S. Holder’s holding period for the SUI underlying such Shares is one year or less and long-term capital gain or loss if the U.S. Holder’s holding period for the SUI underlying such Shares is more than one year. The deductibility of capital losses is subject to significant limitations.
124
Made with FlippingBook - professional solution for displaying marketing and sales documents online