Given the recent memecoin frenzy, I've received a lot of questions about whether a US company can directly airdrop tokens.

Unfortunately, airdropping tokens from within the US creates considerable tax risk for the US company.

WITHHOLDING. The IRS believes airdrops are taxed as ordinary income. US-source ordinary income generally is subject to 30% withholding tax when paid to non-US persons. A payer that fails to properly withhold is liable for the tax, plus interest and possibly penalties.

There are statutory rules for determining whether income is US- or foreign-source. Eg, interest and dividends are sourced by reference to the residence of the payer, whereas payments for services are sourced by reference to where the services are performed.

Unsurprisingly, there are no statutory sourcing rules for airdrops. That means airdrops are sourced by reference to the income to which they are most closely analogous.

That's unhelpful, and leaves a door open for the IRS to assert US sourcing on airdrops by US companies.

Moreover, merely geoblocking non-US IP addresses isn't sufficient. US companies generally need to collect tax forms (IRS Form W-9) from all recipients to establish they did not make payments to non-US persons.

FORM 1099. US companies also generally are required to report payments to US persons in excess of $600 of value in a year on Form 1099, and to "backup withhold" 24% on US recipients who fail to provide an IRS Form W-9.

Merely geoblocking US IP addresses doesn't protect a US company from the 1099 and backup withholding requirement. Nor does KYC'ing only addresses that receive >$600 in value, since many airdrop recipients have multiple wallets.

RISK MITIGATION. In part to mitigate the above risks, tokens often are minted by a non-US entity (e.g., a BVI sub of a Cayman foundation). Payments by non-US entities generally are not subject to US withholding, 1099, or backup withholding requirements.

But Cayman foundations aren't a panacea. For other tax reasons, the foundation typically needs an independent board that exercises its own discretion on business matters (including airdrop allocations) from outside the US. That might not be very palatable for the US company.

WHAT ABOUT MEMECOINS? Selling memecoins from within the United States does not give rise to the above issues because sales for fair market value are not income to the recipients.

So don't interpret the President's memecoin launch as carte blanche to do US airdrops.

TAX REFORM. One way the Trump admin could encourage US blockchain tech development would be to push for a law or regulation providing that airdrops are not taxable until sold (at which point they generally would give rise to capital gain).

Any such law or reg would have to be carefully drafted to carve out payments for services and payments of tokens that represent contractual entitlements (e.g., USDC or tokenized stock), which clearly should be taxed when received.

Until then, it's generally risky to do airdrops, liquidity incentives, or other token rewards from a US entity - including a DUNA - without KYC'ing recipients and withholding on non-US persons (neither of which is typically feasible).