Trump’s meme coin could face legal and tax scrutiny

The United States President, Donald Trump, launched his meme coin a few days before his inauguration, a move that excited the crypto industry. However, in just a few days, the coin is already attracting legal and tax scrutiny.

Fintax has highlighted three serious concerns about the launch of TRUMP. Critical among them is whether TRUMP qualifies as a security under US regulations. The US Security and Exchange Commission states that digital assets supplied through initial coin offerings (ICO) are qualified as securities as long as they meet the Howey Test Criteria.

ICOs always make money by issuing crypto and pledging future returns. TRUMP has been launched publicly, but the team indicated on the TRUMP website that the coin isn’t a security. 

Besides, it has not alleged any future profits, making it difficult to call the meme coin a security. The SEC has not pronounced itself on the meme coin, but if TRUMP begins to act like a security, it will be under the SEC’s scrutiny and regulations.

TRUMP is facing tax scrutiny, with the team holding up to 80% of the coin

According to the IRS, profits from crypto investments are subject to capital tax. Trump’s team holds 80% of the meme coin supply, which will be unlocked periodically over the next three years.

There is a dilemma on whether the unlocking event is taxable. US tax laws direct that capital gain tax takes effect when assets are sold or traded. Therefore, unlocking TRUMP won’t be taxable unless they are sold or used in transactions.

The moment TRUMP is traded or exchanged into other assets, it will definitely attract capital gains based on the market price. Also, figuring out the cornerstone of TRUMP cost is a challenge. The US laws ensure that capital gains tax is pegged to the price at which you bought the asset. 

TRUMP has had wild price swings, making it impossible to establish the cost basis. If the team behind TRUMP sells the cryptos in sets, the capital gains will be calculated based on the timing and market prices of the batches. This makes it difficult to file taxes if proper sales records are not kept well.

TRUMP could breach the law if used for political donations

The meme coin is considered a potential controversy when it comes to political donations. The US law on Transparency and limits of political donations is very strict. If TRUMP is used to generate political funds, it could easily go past the set limits and break the law.

Although there is no evidence of the coin being used for political donation, the idea of a politician launching a meme coin could have serious repercussions on the political donation systems.