RTU Tax Implications: When Are Tokens Taxed in the US and Globally?

RTU Tax Implications: When Are Tokens Taxed in the US and Globally?

Disclaimer: This is not legal or tax advice; this is Liquifi’s reflections of trends across dozens of blue-chip token launches via Liquifi Launch. Please consult a specialized tax firm/advisor. We’re happy to refer you to a Liquifi Network tax/law partner.

Understanding Constructive Receipt in Crypto Taxation

Crypto companies granting RTU agreements and crypto professionals receiving RTU grants often ask us how and when tokens received under a Restricted Token Unit (RTU) agreement are taxed. RTU agreements often involve tokens with vesting schedules, creating a unique challenge in deciding when those tokens are taxable—at the time of vesting or when they are settled into a digital wallet. This article discusses how U.S. tax laws, and potentially other jurisdictions, approach the issue of when tokens are taxed under RTU agreements.

💡 RTUs are common for employees, contractors, or founders in the crypto and blockchain space, particularly for post-TGE, later-stage projects and companies whose token values have appreciated.

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🔑 Key Tax Concepts in Token Taxation: Constructive Receipt and Custody Implications

Before diving into the tax analysis, let’s clarify a few key terms:

• Vesting: When tokens are no longer subject to risk of forfeiture. 
  
  • When the recipient has a legal right to the tokens, even if they are not yet in their possession. 
  • Often follows a predetermined schedule (e.g. four-year vesting with one-year cliff).
• Settlement: The actual transfer of tokens into the recipient’s digital wallet or custody account. Until this happens, the tokens may technically not be in the recipient’s possession and “owned” according to US tax law. 
  
  • Critical for determining the timing of taxation → when the tokens are taxed

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💡 Tokens are bearer instruments 🐻
By default, Tokens are “bearer in nature,” meaning that like physical paper, a person does not fully own the tokens until the tokens are in their possession, such as in their self-custody digital wallet, or a dedicated account at a centralized custodian.

What Tax Rules Apply in the U.S.?

Section 83

Under U.S. tax law, the treatment of tokens awarded under an RTU agreement generally falls under Section 83 of the Internal Revenue Code (IRC). This section governs the taxation of property (including cryptocurrency) received in connection with the performance of services. People often hear about the “83(b) Election” used for Restricted Token Award and Token Purchase Agreements in the US, but this section governs the taxation of property for employment purposes generally.

Taxation at Vesting - Default Rule

When tokens vest, they are no longer subject to a substantial risk of forfeiture. At this point, the recipient has a legally enforceable right to the tokens. Under traditional tax principles, this would usually trigger a taxable event, such as for incentive-based stock like for Restricted Stock Units (RSUs). 

Under the default rules for incentive stock, the stock or stock option recipient would be taxed on the fair market value (FMV) of the vested stock or options at the time of vesting unless there is an exemption, like the one for Incentive Stock Options (ISOs) in the United States.

For example, if 1,000 shares of stock vested today and the FMV of that stock was $5 each, the recipient of that stock would recognize $5,000 of income. This income is typically taxed as ordinary income, with capital gains recognized for any subsequent appreciation in the stock.

Because tokens are bearer financial instruments, meaning that by default they are owned by the person who has them in his or her possession, the default rule for taxation at vesting is more nuanced.

Taxation at Settlement - Nuance for RTUs

There is an important nuance for crypto tokens granted under RTU agreements: If the person vesting into the crypto tokens under an RTU agreement does not have constructive receipt of the tokens at vesting—meaning they cannot access, control, or use the tokens—then under Treas. Reg. § 1.451-2(a) taxation may be deferred until the tokens are settled. Constructive receipt is a concept in tax law that determines when income is considered available to a taxpayer, regardless of whether they actually take possession of it.

Think of constructive receipt like receiving a paycheck that’s locked in a safe you can’t open. You technically have the money but can’t access it—so it may not be taxable yet. The same principle applies to RTUs: if you can’t access your tokens, you may not owe taxes until you can.

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💡 Custody & Compliance Implications
This access, control, or use definition maps well to the core functionality of industry-standard, decentralized multi-signature wallets such as Gnosis SAFE or centralized, regulated custodians such as Anchorage or Coinbase Prime.

In the context of RTUs, if the tokens are bearer in nature and the RTU agreement (and related company Token Incentive Plan (TIP)) are either silent on the point of ownership, or specify that the tokens are not "owned" until settlement (i.e., deposited into a wallet), then the taxable event would likely be considered to occur at settlement instead of vesting.

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What Does the IRS Say?

As of now, the IRS has not provided specific guidance on the taxation of RTUs involving cryptocurrency. However, based on the general principles of Section 83, here’s how the IRS is likely to view the timing of taxation:

1. If the tokens are legally vested and the tokens are transferred to the worker’s digital wallet or account on the date of vesting, the IRS will likely treat the vesting date as the taxable event.
2. If the taxpayer has no control over or access to the tokens until they are settled, settlement is the first instance of constructive receipt, and the grant agreements support such interpretation, the IRS may treat the settlement date as the taxable event.
3. However, if the delay between vesting and settlement is more than administrative or technological, and there is some other reason for the delay, then the IRS may deem taxation to have occurred at the point the tokens would have otherwise been timely settled following vesting.

The distinction is subtle but critical. In many cases, the IRS leans toward taxing at vesting unless there is a clear and good reason for the delay of taxation, such as the time it takes to transfer crypto tokens after vesting.

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How Might Other Countries Treat RTUs?

Outside the U.S., the tax treatment of RTUs involving cryptocurrency can vary widely. Some jurisdictions may tax based on vesting, while others may wait until settlement or even a later disposition of the tokens (e.g., when they are claimed, sold or exchanged). Many times, countries do not have any specific laws speaking directly about crypto, so taxation falls to common law or case law interpretations of when crypto assets may be taxed.

For example:

• In certain countries, tokens might trigger taxation only when they are liquidated or otherwise monetized.
• Other jurisdictions might or might now follow a similar framework to Section 83 of the U.S. tax code, taxing at vesting or constructive receipt.
• In Spain, tokens received under an RTU agreement are generally considered taxable when the tokens vest rather than settled.
• In Singapore, there is no specific tax regime for RTUs, so general tax principles apply, which means that tokens may be deemed to be taxable upon vesting unless a sufficient legal argument is made otherwise.
• In Brazil, taxation occurs when tokens are delivered upon settlement of the RTUs.

Given the evolving nature of cryptocurrency regulations worldwide, it’s essential to consult with a tax professional familiar with your jurisdiction’s specific rules. And because these issues are usually administered by global payroll and employer-of-record (EOR) companies, it is also key to work with those who have experience working with crypto companies like Deel and Remote.

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Practical Takeaways for RTU Recipients

If you are receiving tokens under an RTU agreement, here are some practical steps to consider:

1. Understand Your Agreement: Carefully review the terms of your RTU agreement to determine when tokens vest and when they are settled, or if it is silent on this point. This will help clarify the timing of potential tax obligations.
2. Determine FMV: The FMV of your tokens at the time of vesting or settlement will be critical for calculating your tax liability. Make sure you have accurate and defensible FMV data from a recognized exchange or valuation source like Teknos or Redwoods.
3. Consult a Tax Advisor: The tax treatment of cryptocurrency is complex and rapidly evolving. A qualified tax advisor can help you navigate the rules and minimize your tax liability.

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Final Thoughts

The taxation of tokens awarded under RTU agreements depends on whether the taxable event occurs at vesting or settlement. In the U.S., the general rule is to tax at vesting unless the tokens are not constructively received until settlement. However, every case is unique, and the specifics of your agreement and jurisdiction will play a significant role in determining the outcome

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Need help navigating cryptocurrency tax laws?

‍We’re happy to refer you to one of our world-class Liquifi Network Law Firm partners or collaborate with them as part of our Liquifi Launch package. Reach out for help here!

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