Crypto Investors Are Cashing In On a Trump Tax Break Meant To Help the Poor
Thursday February 10, 2022. 02:00 PM , from Slashdot
'The mystery of how cryptocurrency miners are paying for their energy-intensive mining operations in rural areas has been solved,' writes Slashdot reader fermion. 'Instead of paying up to 40% in taxes, the miners build mining operations in 'opportunity zones.' There are few requirements to show these produce jobs or any income.' The HuffPost reports: [Some cryptocurrency traders] are attempting to take advantage of a controversial tax incentive in Republicans' 2017 major tax legislation -- specifically, by investing in 'opportunity zones,' which were sold as a plan to buoy the poorest American neighborhoods but have evolved into a way for wealthy investors to funnel billions in untaxed profits into virtually any venture they choose. The law allowed companies and investors to delay and reduce their capital gains taxes after they sell a financial asset like stock, so long as they invest the money in a new project located in one of thousands of struggling American neighborhoods designated as opportunity zones. If the investment lasts for more than 10 years, the profits from the new business are completely tax-free. Investors face few requirements to prove that their projects will create jobs or housing for a community's existing residents, and scores of them have taken advantage of opportunity zones to erect high-end hotels and luxury real estate in gentrifying neighborhoods.
Crypto investors -- whose profits are subject to the capital gains tax of nearly 40% -- are making their own run at using opportunity zones by investing in energy-intensive crypto mining operations in rural places around the country. 'It's a perfect fit,' said Blake Christian, a Utah accountant who specializes in opportunity zones and has a newfound clientele of crypto investors. 'They've just had this big windfall and invariably they're looking for a way to save some money because they're about to get drilled on short term capital gains taxes. And they want to keep rolling the dice' by staying invested in the crypto market. Fifteen or 20 clients of Christian's clients, who have made money in the low seven-figures mining or trading cryptocurrency, have set up warehouses in opportunity zones full of powerful computers that solve equations in order to 'mine' cryptocurrency and lease the computing power to other customers. The ideal location for a crypto mine is close to plentiful, cheap electrical power -- of which many rural opportunity zones have plenty. One of Christian's clients is setting one up next to a Texas oil field that has promised bargain-basement rates on natural gas. Another client's startup has a similar arrangement with a solar power provider.
Tom Frazier's company, Redivider Blockchain, is raising money to manufacture prefabricated, moveable data centers that can be plunked down anywhere in the country; he sees opportunity zone status not as a black mark but as a political opportunity. He argues that by setting up shop in opportunity zones, crypto businesses could generate crucial goodwill around an industry and technology still facing widespread derision and skepticism. 'We're creating jobs where Americans need them,' he told HuffPost in a recent interview. Frazier said opportunity zones have gotten a reputation as a boondoggle because the vast majority of investments have involved glitzy, one-off real estate projects. Data center businesses could support tech and manufacturing jobs at locations all over the country, he said. Critics say there's nothing wrong with ambitious business -- just that they don't require giant federal tax breaks. 'Why are we taking forgone taxpayer revenue and subsidizing this, of all the things we want to spend our nation's money on?' said Brett Theodos, an Urban Institute senior fellow and skeptic of opportunity zones. 'Is crypto mining a bad thing? Maybe yes if you're the environment, maybe not for an individual community. But is it something we need to be subsidizing, as the federal government, in order to produce? I'm not clear why we'd want to do that.'
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