Kelman Law sets out how token pay deals should be drafted

Key points

• The column says awards should name the entity making the promise and the entity issuing the tokens, with corporate approvals obtained first
• It says contractual vesting, delivery and transfer restrictions can fall months apart, and tax law may define vesting differently
• It notes IRS Notice 2014-21 measures pay in convertible virtual currency at fair market value when received, with withholding for employees

Token compensation agreements need to spell out what a recipient earns, when it is delivered and what happens if a project changes course, according to a law firm column published by Bitcoin.com News. Kelman Law's Law and Ledger segment says such deals must also work alongside US employment, securities and tax requirements for companies with US employees or advisors.

The column says agreements should identify which entity makes the promise and which issues or holds the tokens, and obtain corporate approvals before granting an award. Allocations should be measurable: a share of supply needs a measurement date and rules for later minting, burns or migrations, while a dollar-denominated award needs a valuation date and pricing source. Vesting, delivery and transfer restrictions should be separated, since they may occur months apart.

Pay and tax rules

On pay, the column says federal wage rules generally require minimum wage and overtime in cash or a negotiable instrument payable at par, so companies should not assume token transfers meet those obligations. It points to Rule 701 for certain compensatory offerings by eligible nonreporting issuers and notes that securities issued under it are restricted. On tax, it cites IRS Notice 2014-21 for outright payments of convertible virtual currency and Section 83 for restricted property, with Section 83(b) elections generally filed within 30 days of transfer.

The column also covers termination, repurchase and clawback terms, worker classification and Section 409A deferred compensation. It advises specifying wallet verification, supported networks and transaction fee responsibility, and aligning written terms with any smart contract controlling vesting or release.

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