This week, U.S. Securities and Exchange Commission (SEC) Commissioner Peirce (not the SEC) released an updated token safe harbor proposal, which amends her original proposal from February 2020. The safe harbor would seek to provide network developers with a three-year grace period to facilitate participation in and development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws. The updated safe harbor proposal makes three significant changes from the prior version: (1) to enhance token purchaser protections, the proposal adds semi-annual updates to the plan of development disclosure and a block explorer; (2) at the end of the grace period, the proposal adds an exit report requirement, which would include either an analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will be registered under the Securities Exchange Act of 1934; (3) the exit report requirement provides guidance (not a bright-line test) on what outside counsel's analysis should address when explaining why the network is decentralized.

In other regulatory news, the Office of the Chief Counsel of the Internal Revenue Service (IRS) recently released a memorandum responding to a request for tax advice from someone who received bitcoin cash as a result of the Bitcoin hard fork in August 2017. While this memorandum cannot be cited as precedent, it stated that cryptocurrency received from a so-called hard fork that altered Bitcoin's underlying ledger to result in a split that generated bitcoin cash is considered taxable gross income. The analysis includes two hypotheticals that rely on whether the taxpayer had dominion and control over bitcoin cash to determine whether it is considered taxable income under Section 61 of the Internal Revenue Code.

A recent blog post brought to light the issue of whether virtual currency is subject to unclaimed property law given that state unclaimed property laws apply to a wide variety of assets or property types, and the IRS has defined virtual currency as property (IRS Ruling Notice 2014-21). The blog post provides an overview of state views and notes that the 2016 Revised Uniform Unclaimed Property Act developed and updated by the Uniform Law Commission (ULC), included virtual currency in its definition of property that is subject to unclaimed property laws.

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