How Virtual Decentralized Entities May Obtain Tax-Exempt Status

Not-for-profit and charitable decentralized autonomous organizations may seek to be exempt for federal tax purposes but, as with DAOs generally, the IRS has not particularly addressed the taxation of these DAOs as digital age entities.

Ultimately, the lack of profit or loss sharing and the activities of some DAOs may not cause default into partnership or any other entity status. A joint undertaking the activities of which do not give rise to a separate taxable entity is denoted by the diminutive adjective “mere” in the Treasury regulations underlying the partnership code—for example, in Reg. §301.7701-1(a)(2), “merely to share ...