The tax treatment of a Binaryx pre-IPO deal follows the same pass-through model as our real estate deals. This page summarizes what to expect. It is general information, not tax advice; consult your own advisor for your situation.
Do non-US investors pay US tax?
Generally, no. A capital gain on the sale of shares is not subject to US federal income tax for a non-US resident, and a passive investment in shares bought on the secondary market does not by itself create a US tax liability for the investor (IRC §871(a) and §864(b)(2)). Tax is due where you are resident, under your own country's rules.
This is also why every investor files a W-8BEN during onboarding: it is the form on which a non-US individual certifies their foreign status for US tax purposes. Pre-IPO deals are open to non-US investors only, so this applies to everyone in a deal. See Who Can Invest in Pre-IPO.
Form 1065 and Schedule K-1
The DAO LLC that issues your tokens is treated as a partnership for US tax purposes. That means it does not pay income tax on its profit itself; instead, it files a US partnership return, Form 1065, and passes the tax responsibility through to its members. Each investor receives a Schedule K-1, the form that records their share of the deal's income for the year, calculated in proportion to the number of tokens held.
Two entities, but no double taxation
A deal involves both a DAO LLC and a fund series, which raises a fair question: is the profit taxed twice? It is not. Because the DAO LLC is the sole member of its fund series, that series is a disregarded entity for US tax purposes, meaning it is not taxed separately and files no return of its own. All reporting happens once, in the single Form 1065 at the DAO LLC level, and the profit passes through to token holders with no tax charged at either entity.
Years with no income
A pre-IPO stake typically produces no income for several years, until it is sold at an exit. During those years, your Schedule K-1 will be a nil or minimal filing: it reports your holding but shows no income to tax. You still receive the K-1 each year the deal is open, normally within 90 days of the year end.
When income is realized
When the stake is sold at a profit, at an acquisition or an IPO, income is realized and distributed. Your Schedule K-1 for that year reports your share of that income, in proportion to the number of tokens you hold. You then report that amount according to the tax rules of your own country of residence.
The same model you already know
If you have invested in a Binaryx real estate deal, this is the same structure you have seen before: a pass-through entity, Form 1065 at the DAO LLC level, and a Schedule K-1 to each token holder. The underlying asset is different; the tax mechanics are not.
Related
This page is general information, not tax advice. Tax treatment depends on your country of residence and personal circumstances.
