#582: Austin Woodward on Building Tax Infrastructure in Bitcoin

Austin Woodward is the co-founder and CEO of Taxbit, the leading cryptocurrency tax software that recently raised $100 million from Tiger Global and Paradigm. In this conversation, we discuss Taxbit’s product suite, tax loss harvesting, IRS, El Salvador’s bitcoin adoption, tax strategies of the rich, and cryptocurrency accounting software. ======================= Public Rec is on a mission to make comfort look good. Their fan-favorite Flex Short is the ultimate crossover short you’ll need all summer long. From the beach to the gym, this quick-drying short has you covered. Comfort starts with a better fit. Free shipping. Free returns. Visit www.publicrec.com/pomp and use POMP at checkout for 10% off! ======================= Whether you're an experienced crypto trader or just starting out, Kraken has the tools to help you achieve financial freedom. With the new Kraken app, you can easily buy and sell over 60 of the most popular cryptocurrencies in just a few minutes. Featuring a sleek new design and an easy-to-use interface, you can now take your crypto portfolio with you on the go, 24/7. Visit kraken.com/pomp to learn more or search "kraken" in the app store. ======================= Unstoppable Domains makes crypto easier by replacing your address with [AnyName].crypto. They allow you to send and receive over 70 cryptocurrencies, including BTC, ETH, and LINK with a single blockchain domain. Go to unstoppabledomains.com and get [YourName].crypto to make your crypto life easier. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Austin Woodward is the co-founder and CEO of TaxBit, the leading cryptocurrency tax software that recently raised $100 million from Tiger Global and Paradigm. In this conversation, we discuss TaxBit's product suite, tax loss harvesting, the IRS, El Salvador's Bitcoin adoption, tax strategies of the rich, and cryptocurrency accounting software. I really enjoyed this conversation with Austin, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up are my friends at Public Rec. Public Rec simply makes the most comfortable clothes in the world. Public

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• 1:27Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:54Anthony Pompliano?

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• 3:24Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:52Anthony Pompliano?

  All right, guys. Bang, bang. I've got Austin here. How you doing, man?

• 3:55Speaker 02

  Great to be here, Pomp.

• 3:56Anthony Pompliano?

  Absolutely. All right, we're gonna get started with the biggest news probably earlier this year, which was you raised $100 million Series A. Where did that come from?

• 4:05Speaker 02

  We were at the right time at the right place with great execution by a great team. So we've been working on tax and accounting software for consumers, enterprises, and governments to really fuel widespread adoption of cryptocurrency. So it was awesome to see it all come together.

• 4:18Anthony Pompliano?

  Yeah, and when you think about the product, right? You said that you serve the retail users, you serve the corporations or the enterprise customer, and then also governments. Maybe let's just walk through it. Like, how does a retail user interact with the tax and accounting software that you guys build?

• 4:33Speaker 02

  Yeah, so tax software in crypto to date has been primarily retail driven, meaning the burden or obligation is on all of us as crypto users to go and compile your data and report your taxes properly. And so our product, commonly referred to as the TurboTax of crypto, is do it yourself, link your exchanges, link your wallets, and then we produce your tax forms and feed those into TurboTax or over to your accountant on the backend. Well, a few years ago, we knew that that model wasn't going to last. At some point, exchanges and the actual broker dealers, banks, financial institutions, were going to issue 1099s and actually going to help the users compile their taxes natively within their applications. And so we set out to go and build professional-grade,

• 5:17Speaker 02

  cloud-based, native, very secure software for the enterprise in order to furnish those 1099s and provide users with an experience within the applications that they use on a day-to-day basis. And so we're excited about our client list on that side. So that's the enterprise market. And then the government side of things, just a couple of weeks ago, we announced that the IRS selected us as their cryptocurrency tax software provider. And so that's just the beginning. We've got so many governments around the world looking for software to help them just really get in compliance with the tax regulations of their countries. And so that's an exciting market for us as well.

• 5:52Anthony Pompliano?

  So I think people understand the retail market. I think they understand the enterprise market. When the IRS says that you're their tax software partner, what does that mean?

• 6:02Speaker 02

  Yeah, so what we can say, obviously, that means a lot. And there's 18 months of a long relationship here in RFP process, but they are using our software and data feeds in order to audit the accuracy of what taxpayers are filing with them or not filing with them. If a taxpayer failed to file and they said, hey, what do I owe? The IRS will come to us and say, okay, what does that look like? And so we're helping them from that perspective. And then there's some other things that are in the works as well that we can talk about as time progresses.

• 6:33Anthony Pompliano?

  Okay. And then you also have accounting software. So the way that I think about this is the flow of funds or capital through retail, enterprise, and then ultimately the government kind of overseeing a lot of this is applicable to taxes, but it's also applicable just on day-to-day basis. I gotta run my business. So I gotta manage my portfolio. And so that's where the accounting stuff comes in. But like, what do those products look like?

• 6:55Speaker 02

  Great question, Pom. So this actually started from a kind of this land and expand model. As we were integrating our enterprise tax clients, they came to us and said, hey, you're running gains and losses for all of our users, real time. It's incredible. No one is doing that for us as an entity for GAAP or IFRS accounting purposes. And so they're like, hey, we're struggling to get a big four auditor or to take us on as a client to actually think about any sort of SPAC, IPO, or liquidity event, because we don't even have audited financials. It's taking us months to close our books. And so we set out with them, very high-end, top of the market, to go build the first big four SEC-grade sub-ledger, kind of an ERP of cryptocurrency that feeds back into your

• 7:36Speaker 02

  NetSweats, your Oracles, and SAPs. Well, as you can imagine, as we're seeing institutional adoption of crypto, this product is going to be huge for any institution that holds crypto on their balance sheet, but/or accepts it as means of payment. And we're starting to see a lot more adoption on that side of things as PayPal's or at least merchant spend to 30 million merchants now and other corporations are starting to accept it as a currency. And so that will automate their books and accounting from their journal entries to their asset and liability reserves to their gains and losses and so much more in real time.

• 8:07Anthony Pompliano?

  Yeah. And so if you raise a $100 million Series A, somebody gave you $100 million. We could talk about who those people are in a second. But there's gotta be growth, right? There's gotta be some value. There's gotta be some validation of this. So like, what metrics can you share about just the tax bit business and how it's grown over the last two or three years?

• 8:26Speaker 02

  Yeah. So we issued, I think in the hundreds of thousands of tax forms prior to this year. This year, it was many millions of tax forms. So exponential growth, probably close to 100x on number of users and kind of latency of our software. And then we've also grown Headcount, I mean, we're doubling our team, I swear, every month right now. So coming up on 70 people will be over 100 here in the coming weeks. Or months, I should say, adding, you know, five people a week right now. And then as we grow internationally, this isn't just a problem in the United States. Like cryptocurrency is property. It's not cryptocurrency, it's crypto property. And that's in like 80% of the world's countries. And so this has to be solved across the globe in order for cryptocurrency to continue to proliferate.

• 9:10Anthony Pompliano?

  So you guys have grown, I think you've become by far the leader in this space, both from the people who are behind you, the capital that you've raised, the headcount, the software, the users, the relationship with enterprises, governments, etc. Like, I don't want to say that you have won because that would insinuate that it's over, but you definitely are the leader, right, in terms of this stuff. One of the things I'm really interested in is recently El Salvador announced that they were going to make Bitcoin legal tender. Then that kind of kicked off this domino effect of like everyone in South America now has laser eyes on Twitter.

• 9:44Speaker 02

  Exactly.

• 9:44Anthony Pompliano?

  Right? There's politicians in like every country in South America, in Central America, which one is awesome. But two is, I don't even understand, and I think most people don't understand, what the implications, if El Salvador actually does make Bitcoin legal tender, does that then make some of these tax complexities in the United States smaller? Does it remove them? Or does it actually not matter? And some of this is like people are kind of wishful thinking.

• 10:07Speaker 02

  Yeah, and I think El Salvador, it's incredible announcement. Obviously, Argentina is close to my heart. I lived there for a couple of years. So really excited to see the adoption there. And I just saw firsthand the inflation problems and the poverty that people were dealing with there. So Bitcoin, I'm a huge believer, obviously, for the utility behind that. From a tax perspective, 70% of people in El Salvador like don't even have bank accounts. So we're not talking about taxes right now. Or is the president, or is that the focus? Like, we're talking about putting food on people's table. And so I think we're going to start to see more developments on the tax side in Latin America and more of these third world countries on what that looks like. And so the answer right now is there hasn't been any like guidance or even hints at what that looks like for these Latin American countries.

• 10:51Anthony Pompliano?

  Well, what about in the United States in the sense of? If El Salvador makes it legal tender, then does that mean it's a foreign currency in the United States? And therefore it's no longer the crypto property you were talking about it now becomes a currency? Or how does that?

• 11:03Speaker 02

  Yeah, it won't change the treatment here in the United States. So in El Salvador, residents and citizens in those countries, TBD, TBD. So we're going to see on there. But here in the US, it's property. Anything that fluctuates in value is a capital asset. Your car is a capital asset technically. If you sold that for a gain, obviously that's, you know, highly unlikely is it's a depreciable asset. And so that's how the IRS has looked at it. And it's the same way as equities and real estate and anything else that has increased or decrease in value.

• 11:31Anthony Pompliano?

  This brings me to a topic that most people don't know about. The wealthiest of the world know all about this. There's something called tax loss harvesting. And we recently saw a report come out, I think it was ProPublica did it, where they got access to the tax returns of very, very wealthy people. And I don't remember the exact numbers, but it was like less than 4% income taxes what they were paying. Now, people, that's the headline, everyone yells and screams, whatever. We should caveat like wealthy people don't make most of their money from income. They make it from capital gains and other types of wealth generation events. And most of their wealth is in a unrealized gain kind of status. Therefore, they don't pay taxes until they actually sell it or monetize it or whatever.

• 12:14Anthony Pompliano?

  But they also understand this idea of tax loss harvesting. So maybe describe what exactly is tax loss harvesting? And then we could talk about how that applies to crypto and what you guys are doing with it.

• 12:23Speaker 02

  I think it's the most hidden treasure in wealth generation that there is. I think most people know wealth is generated by assets. It's by equity ownership. It's by owning things that appreciate. But when you own assets, unfortunately, everything isn't linear up into the right. It is up into the right over time with dips along the way. And so what's not talked about enough is how taking advantage of those dips, selling, harvesting a loss, and then legally repurchasing your position back in at the right time in order to continue to appreciate over the long term. That's tax loss harvesting. And so as you do that, all of those losses start to accumulate.

• 13:03Speaker 02

  And losses carry forward. You can't carry them back. So losses today are better than losses tomorrow. Harvest them anytime you can and you keep stacking them. People talk about stacking sats and Bitcoin. Stack losses and then when you ultimately do convert to Fiat, not that you should in crypto as Bitcoin is going to rule the world, right? But when you do, you have this whole, you know, treasure chest of losses that offset capital gains almost entirely if you do it right. And so in that article, I was a big fan of reading that, but that was the one piece that wasn't talked about was even when these people, these wealthy individuals do cash back to Fiat. That's why you're seeing such small percentages, 4%, 5% is they've harvested losses along the way.

• 13:43Anthony Pompliano?

  So forget crypto for a second. If this was just the regular stock market and let's say I bought a stock at $10. It goes up to $15 and then all of a sudden it goes back down to $8. And I actually sell the stock at $8. I book a $2 loss, right? And so if I then got paid $2 at work as part of income or whatever, I basically could negate the $2 of income with the $2 of the loss from the investment. Basic overgeneralization. Now, in the equity market, there's all sorts of rules around wash trading, which basically means I can't go sell the stock and then immediately buy it right back. There's a period of time I can't actually own the stock and it makes it a little bit harder to do this in the equity market.

• 14:27Anthony Pompliano?

  In the crypto market though, those rules don't apply as of now. Maybe they will in the future, but right now they don't apply.

• 14:33Speaker 02

  That's correct. They apply to securities, cryptocurrencies property right now. And so it's not a loophole. I think it's a known item. It's going to come up in the, in the future. It's a, you know, low agenda item right now. There's still this whole infrastructure behind cryptocurrency and a movement happening. Where we're going to see a lot. But here's the thing, in the equity world, what the most savvy people are doing is they're not waiting 30 days to repurchase their position in their asset. They're repurchasing a position in a 95% correlated asset immediately, holding that during the 30 day wait period and then going back into their original asset. So software does that. Software can run all these correlation and statistical regression tables. Taxbit is doing this in preparation. You know, for wash sale rules on both. We're not just a cryptocurrency company anymore.

• 15:17Speaker 02

  We support commodities and equities and this whole gamut of assets. But that's the power there is you can start to get creative, especially in crypto. Like, how many types of Bitcoin are there? Bitcoin, wrapped Bitcoin. You know, so many different things that are tied to the price of Bitcoin. That's going to help to get around wash sale rules in the event that those ever do apply.

• 15:39Anthony Pompliano?

  And so what do you guys do with tax loss harvesting today? Like, how can I use TaxBit software, either as a retail user or through an enterprise product for tax loss harvesting?

• 15:47Speaker 02

  Yeah, let me tell you about it. So let's start on the consumer side. Any one of cryptocurrency investors right now can go sign up at taxbit.com, do it yourself, link your exchange accounts. You're going to have this whole tax optimization module. You're going to be able to go in there and see all of your outstanding cost basis lots that sum up to what you own and you're going to see them by source, where they're being stored, what exchanges, etc., wallets. And you can start to see, okay, now, as of right now, I have a loss in this lot. I should select that lot, go and sell it. You're going to see the software update real time and, and, you know, decrease your taxable gains or take you to a loss position and start to accumulate those losses. And so you can do that across all the platforms that you hold assets in through TaxBit Consumer.

• 16:31Speaker 02

  Where we're going and lots of announcements that I'm excited to share is you're not going to have to use TaxBit Consumer for much longer. We have an amazing list of clients that we're actively implementing right now, dozens where the same platforms that you're using on a day-to-day basis through your mobile apps, you're going to be able to do this natively within their application. Tax Center tabs are coming to the industry and it's an end-to-end experience to be able to harvest losses straight on those platforms and set notifications, set automated trades and alerts and so many other things. And so we're excited to share more.

• 17:03Anthony Pompliano?

  In some way Shopify's entire motto is like, arm the rebels, right? There's no greater rebel than the Bitcoin and kind of cryptocurrency industry. And so really what you guys are doing is you're trying to take these very sophisticated strategies, these, in many cases, complex computational kind of technologies that have been built for the ultra-rich. And you're now trying to almost bring that to the everyday retail user, whether it's they go directly to TaxBit or they're going to eventually at some point be able to use it in the actual exchanges or wallets that they use on a day-to-day basis.

• 17:34Speaker 02

  That's exactly right. And I'm, we're democratizing tax. Usually you need to go and pay an attorney or a CPA and they do this for wealthy individuals. How can we bring this to the masses? So every day people can harvest losses. It's not hundreds of thousands of dollars, but you know, tens or hundreds of dollars. That is more, more typical in America today for middle America.

• 17:53Anthony Pompliano?

  Yeah. Is there anything else that you see that people who are interested in reducing tax bills? That like a wealthy strategy that they should be thinking about here in crypto? And that's much from like an advice standpoint, but like tax loss harvesting is a great idea, right? Are there other things that you guys have either built into the product? Or you think that people should be aware of?

• 18:11Speaker 02

  So there's a variety of ways to harvest losses and you know, selling is one of them. But cryptocurrency, ultimately, we want it to have utility as a currency vehicle. And spending is a taxable event. And so when you think about actually using crypto, there are ways that you can use crypto to optimize your taxes in a tax beneficial way, similar to loss harvesting, but also donate for those that are charitable minded out there. Donations are one of the most fascinating topics that so many high net worth people do. Because everything that you donate is tax free from a capital gain perspective. If you're in a long-term status, all of that, you get credit for a charitable deduction at the fair market value at the time you donated it and it is tax free.

• 18:53Speaker 02

  And so you're double dipping from the charitable contribution and the tax free and the appreciation. So we're helping a lot of people on the charity side and then as well, the tax loss harvesting side by either selling or using crypto.

• 19:04Anthony Pompliano?

  Today, the product it feels like is a manual and kind of opt-in, right? It seems like though eventually you want to get to more of like an automated solution. And so is this like a version of almost like a robo advisor for taxes? Kind of like the end result here?

• 19:20Speaker 02

  Yeah, I think that's exactly right. We're starting to see if we can bring the tools straight to those platforms, hand you your tax forms at year end. You can do everything from your mobile app. Most of the time you're not even going to know that TaxBit is the provider in the background, making this all happen. That's what, that's when we know we've succeeded is when every single person is using TaxBit on a day-to-day basis without even knowing.

• 19:40Anthony Pompliano?

  Yeah. What's so fascinating to me about you guys is you come from a very strict kind of finance, accounting background in terms of previous success in Salt Lake City, I think you guys were, right?

• 19:53Speaker 02

  Yep.

• 19:53Anthony Pompliano?

  And you stayed there. And now you've opened a second office, my understanding is in Seattle. And so, most people would not think of Salt Lake City or Seattle as the places to go build crypto business. So maybe talk about kind of what brought you to Salt Lake City, why you stayed and started, and then the second headquarters in Seattle.

• 20:12Speaker 02

  Yeah, I mean, the whole tax bit story is unconventional to begin with. I mean, I left, so I started my career at Qualtrics, rapid growing SaaS company, turned down the big four, I'm a CPA. So you know, that's the safe career path. My parents, everyone, thought I was nuts. And so, joined this startup, their first accountant ever, and it was hyper growth, you know, controller of their worldwide operations, writing their S1, leading out on M&A deals, doing everything. And so, I was able to grow so quick there. And that story was a Utah basement story founded by Ryan Smith, who now owns the Jazz, incredible guy, an investor in us as part of this round. As yourself, Pom, we should talk a little bit about that, too. So, as I've gone

• 20:52Speaker 02

  through that, Utah's just flourished. We brought in so much talent over the last 10 years to Qualtrics and all these other companies. It's called Silicon Slopes right now, right? And so, it's an amazing place. The dollar goes a long way. The weather's incredible. You got the mountains. There's so much to do that we're, okay, we need to, you know, take advantage and harvest this ecosystem here. Well, Seattle, I grew up there, like, I'm from there. And so, when you look at it, that was logically the next place where, okay, there's a lot of good talent there to similar business models as us, Stripe, Avalara, you know, API providers, that's who we are. And so, that just made sense. The dollar goes a little bit farther than, you know, Manhattan or San Francisco. And so, that was where we're going for, you know, product and dev to go faster and

• 21:35Speaker 02

  more at speed. So, yeah, I think, you know, we started in a basement ourself, my brother and I, a tax attorney, CPA, and people were thinking we were nuts. It was 2017, crypto taxes, that's an oxymoron, like, people go into crypto to avoid taxes, to do money laundering. And so, we just kept building and building and building. We were in stealth mode for many years, building this enterprise professional security that could scale to billions of transactions at the enterprise level. And really fortunate now that cryptocurrencies has hit this wave, that we were ready. And so, it is a little unconventional, but perfect timing.

• 22:09Anthony Pompliano?

  Salt Lake City in Seattle now, I think people are starting to recognize, okay, we can recruit people here. We're recording this in Miami. You were just here for the Bitcoin conference. What are your thoughts on the conference and on Miami?

• 22:20Speaker 02

  Miami is blowing up right now. I love it here. The conference was incredible. I've been coming to these conferences for four years. This one was unlike anything else. Just, there was a line half a mile around the block to try and get in. And you know, these, these tickets aren't cheap. This isn't general admission. These are people, I was talking to couples who drove eight hours here, just a husband and a wife that aren't high net worth individuals. They're just fascinated by this. Like this is their life. And so really cool to see the amount of energy, but not just on the retail side. Institutional adoption is here. Bitcoin's here. And so we're starting to see Fortune 500 companies, big funds, hedge funds, administrators.

• 22:59Speaker 02

  They're taking this seriously. Large banks, traditional banks, up and comers. It's here to stay. And so this is a great time and great place to be here in Miami.

• 23:07Anthony Pompliano?

  Yeah. And so when you think about kind of developing a global workforce, uh, we were talking beforehand and you guys are actually having this hybrid model. So some people are like, oh, we're all remote. So we were like, everyone get back in the office. Like walk through coming out of COVID, how you've thought about, you know, hey, I run a business that's got tens of people that work there. Have you thought about coming in the office, not going in the office? And like, what works for you guys?

• 23:29Speaker 02

  Yeah. So obviously we wanted to get feedback from our team first and foremost. And the overwhelming feedback was when we were an office company, five days a week prior to COVID. And you know, there were times where people said, hey, like, can I work remote? And we didn't know, we didn't feel good about that. Right? Like that wasn't the norm. Well, as we went into COVID, it was completely flipped on its head. Everyone remote. Um, and that got tiring and strenuous. And the feedback was, man, what I would do to like have face-to-face interaction again. And so as we've now shifted to vaccinations available, the feedback was, I want the best of both worlds. I want face-to-face interaction. I want the camaraderie, the energy, the hallway whiteboard moments that happened with that. But I also want to lock myself in my room at times and just be heads down and get, knock shit out.

• 24:14Speaker 02

  And so, um, you know, that's what we've, that's what we've incorporated and we're starting to see that not just. At our company, but so many large Fortune 500 companies, three days a week in office, two days a week remote, really just being flexible with people.

• 24:26Anthony Pompliano?

  And is it like Monday, Wednesday, Friday, you have to be in the office, Tuesday, Thursday, do whatever you want. Is it like, hey, what, what days do you want to be out of the office versus in the office? Like, how do you think about, is it team specific, like just like operationalizing, you know, kind of this hybrid model?

• 24:39Speaker 02

  For us, Monday and Friday are the mandatory days. We do all hands team meetings. We bring in lunch those days. We do all kind of our events, our goals and the, and the, and the like those days. Then the other day is team specific. Hey, get together with your pod or your team and figure out what works best for you. So just being flexible there.

• 24:56Anthony Pompliano?

  Got it. Um, as you look forward, taxes are only going to become a bigger and bigger idea. Uh, one, uh, we see lots of cities and states now saying, wait a minute, this industry is, there's a lot of wealth generation. There's a lot of companies being built, all that stuff. Like, maybe we want them based here, right? Whatever the city or state is, because there's tax revenue associated with it. Uh, two, there's jobs associated with it. So how do you see like the next couple of years when it comes to the intersection of crypto and taxes? Is there things around enforcement? Is there things around like the accounting aspect? Is there things around maybe trading that you're excited about? Like, what is it that you're like, okay, these are the things to watch over the next couple of years?

• 25:36Speaker 02

  Yeah. So I think we've already hit a lot of inflection points. I mean, Coinbase's large IPO is one of the largest in tech and BlackRock, Visa, PayPal, rolling this out to the masses. The institutional adoption is something I keep my eye on more, more so than the price of Bitcoin. I ignore that. It's all about adoption in my mind. But I think the second is cryptocurrency has not been a currency today. People aren't transacting that point of sale. And so over the next couple of years, I do foresee that changing where it makes sense to spend currency from a tax perspective at times, but also ease of use and transaction fees and just the electronic nature of it. So I think that's another thing that we're going to start to see. And then third, I think just disruption

• 26:18Speaker 02

  of the underlying technology blockchain as a whole, what that can do to property titles, to the whole accounting profession where I can, you know, have an immutable cap table. And balance sheet and all right there. That's, you know, trustless and verifiable. And so I start, once we start to see those three things start to happen where this is disrupting, not just finance, but technology from the core way of doing things, the legacy way. I, I think that's coming in the next 24 months.

• 26:46Anthony Pompliano?

  Yeah, it's really interesting too, where I'm an investor in tax bit, I'm an investor in BlockFi. So let's use those two as examples and BlockFi is one of the early partners that's starting to incorporate some of the tax software. It's like a no brainer. We talk to the executive team, right? They're like, of course our users need tax help, right? Like, and we, and we want to be able to do that. And some of it's like, we want to remain in good standing with regulators and with the IRS and things like that. And empower with the right documentation. And some of it's just like, it's just a good experience for them, right? It actually helps our customers be more successful and therefore of course we want to do it. And so it feels like this is inevitable that every single company is going to incorporate the reporting,

• 27:29Anthony Pompliano?

  going to incorporate it natively inside the software. Like there's just this element of like, duh, right? I mean, it sounds like you've had that idea now for a couple of years, but like it, it feels like now people are waking up and it's becoming very obvious that this is where we're going.

• 27:43Speaker 02

  Yeah, that's exactly right. We obviously love the BlockFi team and yeah, you can connect your tax bit account, all your transactions right there within their app, you know, with one click and your taxes are done. Well, just wait for what's coming. There's so many more announcements between our two companies around the corner. It's even going to take this to a whole nother level. But that's how the equity industry has existed, Pomp, is you don't have to go and figure this shit out on yourself. The equity brokers have those tax center tabs and they help you out. And so the hurdle here, this wasn't something we invented per se, the idea, the technology hurdle was the hurdle. This is a different asset class. It's voluminous. There's transfers on and off platform. There's forks. There's airdrops. There's all these complications, coin for coin trades that don't exist in the equity space.

• 28:27Speaker 02

  And so that's why it took us a long time. I mean, you know, three years in stealth mode, grinding this out, just working on the tech to be able to scale to the masses. So it was inevitable to us and it's really exciting to see. Throughout this year, you're going to see tax become a household name with so many of the largest broker dealers, lending platforms, banks, and not just in the cryptocurrency space, but in the equities and commodities and whole tokenized economy space.

• 28:51Anthony Pompliano?

  Yeah, it's fascinating when you start to think about Bitcoin, then the cryptocurrencies, then tokenized equities, and you kind of keep going out. But from a tax software provider, it doesn't really matter, right? You just need to know what the asset is, right? But from a technology interface standpoint, if everything is digitized, it actually might be easier for you, right? Like it may make you more effective rather than there being all these different platforms and different technologies and whatever. Like if everything is just digitized, game on.

• 29:19Speaker 02

  That's exactly right. We're here to power it all.

• 29:21Anthony Pompliano?

  How do you think about, from a tax perspective? If I've got a platform, and there can be all kinds of different platforms where I've got cryptocurrencies, I've got something that looks more like commodities that are digitized, equities that are digitized, etc. Is that something where you guys think, you know, hey, we're going to service one account, it's going to hold multiple assets? And like, that's going to be our interface with the client? Or do you feel like we're going to get a replication of the legacy financial world where, you know, I have an account for my equities? I have an account for any commodities that I own usually. I've got an account for maybe currencies. I've got an account for my bank itself, right? My savings account or checking account. Like, how do you see this playing out? And how are you guys building your software to be ready for this?

• 30:02Speaker 02

  I think it's all coming together. I think we're entering the 21st century of banking. I think traditional banks are shaking in their boots right now. And we're going to start to see tokenization. I call it the tokenized economy across all assets, commodities, equities, cryptocurrency, real estate. You can tokenize anything in the future. And so I'm obviously very bullish and forward thinking here, and some might call me crazy. But yeah, being able to do all of that within one platform, or you know, it won't be one winner. It's not going to be a winner take all for all of finance. But you know, the ease of use, having all of your asset management right there, platform specific, and then having tax and accounting built on, integrated into that is super powerful.

• 30:44Speaker 02

  And you're going to be able to really take advantage of your wealth and your situation. Control it much easier than than traditional finance today.

• 30:51Anthony Pompliano?

  Yeah. What are the downsides to all of this? Right? So when you were talking to investors or you were talking to potential partners or customers, like, what are the things that make them hesitant or like risks that they associate? Is it just a prioritization thing? Like, we always talk about all the good things that are happening, right? But like, what do you think are the the things that fall in the bucket of, hey, here's feedback we get that either we're working on, or as an overall industry, we've got to improve to kind of, you know, become more sophisticated?

• 31:20Speaker 02

  Yeah, I mean, any entrepreneur will tell you, even when things are going great, it's hard as hell. And so there's, you know, fires to put out on a day to day basis. We're hyper growth mode. I mean, half of our team wasn't here two months ago. And so you've got people onboarding and training new employees that have only been here three months. So talking about culture and how you scale, it's chaos. And it's always chaos under the hood of the fastest growing tech companies. So it's exciting. It's challenging. It's fun. From our business in particular, privacy and security are at the forefront. Like, we take that so seriously. We're investing so much there. And, you know, there's a lot to do. And there always is. Anyone that says that they've

• 32:00Speaker 02

  arrived when it comes to privacy and security, I'd be, you know, very weary of. And so we aren't an asset custodian. That's great. We're, you know, API in with read only access to see data. But anything that touches your financial well being is sensitive in my mind. And that needs to be guarded, guarded super secure. And so that's something that we take seriously and that we obviously stay close with investors and our board on. The industry in general, I think, in order for cryptocurrency to exist, and I'm so proud of the industry first and foremost, because this could have went two ways in 2017. Regulators could have shut this down and said, no, we have no KYC. We have no tax enforcement. Like, that breaks all the foundational backbones

• 32:43Speaker 02

  of how America was built. But they gave it a chance. And they said, okay, we're gonna let this play out. And we're gonna, you know, allow the practitioners in the industry to go and solve the KYC, the, you know, AML, and the tax and accounting challenges. And, you know, fortunately, It, you know, solved that on the tax and accounting side and other providers on the AML KYC side. But we have a long ways to go. When you talk about DeFi, how are we going to scale that? And those sorts of protocols to the decentralized world, because I'm a huge DeFi fan. And decentralized lending and borrowing is incredible. But tax evasion, money laundering can't happen. And so as soon as that stuff starts to creep in, we've all got to be, you know, mature enough to realize that this industry is going to be around and go to the masses.

• 33:26Speaker 02

  We've got to do it in a regulated way. And that's my opinion.

• 33:30Anthony Pompliano?

  When you think about the decentralized space, it's interesting because right now, most of it is you go direct to the user or you go to centralized entities. But if the dominant use case becomes decentralized infrastructure, is there a way for you to kind of plug in and still automate some of this? Or is it going to be completely reliant on the individuals coming and kind of uploading information?

• 33:50Speaker 02

  And that's, that's the piece that can't happen. Just, you know, conversations with the IRS and others like voluntary tax reporting has never worked in society. The 20 years ago, the equity space all changed. 1099Bs came out because voluntary tax reporting wasn't working. There was this massive tax gap is what the IRS defines.

• 34:07Anthony Pompliano?

  What is that a tax?

• 34:08Speaker 02

  The tax gap means it's the gap between number of people that should be reporting and number of people that actually do. And so as you close this tax gap, that's when, you know, assets start to have mainstream adoption because regulators are getting behind them and embracing them. Right now in cryptocurrency, there was a massive tax gap and the number of people actually that should have been reporting has been low. And so, you know, issuing 1099s and the IRS starting to enforce this at the exchange level is how that tax gap can start to close is the IRS has KYC and taxpayer information. And so if you don't file, it's a robotic audit. You're going to get audited. And so there's really kind of no more option here. So the decentralized world, my hypothesis is we're going to start to see the next generation of tech companies on the KYC front.

• 34:50Speaker 02

  How can we layer on some of this standard protocols that exist in the centralized space? And then, you know, take that to the next level. So, you know, firsthand conversations with our investors and so many others. There's a lot of innovation to happen.

• 35:04Anthony Pompliano?

  Yeah, it's interesting when you think, I think I one time saw, and I'll probably get the numbers wrong, but Actually correct. It was like 14,000 people one year reported taxes for crypto. And it was like, you know, one exchange had like 200,000 people on it, let alone all the other exchanges. And so this tax gap, I guess, is like, that was really, really big at one point. I'm assuming that it's become much lower, but there's still a gap there. Is that fair?

• 35:29Speaker 02

  Yeah, yeah. And it's going to close even further and further. So exchanges are starting to file. You're seeing subpoenas across popular exchanges issued by the IRS. And so there's a lot more. We're still in the early innings, not just in crypto in general, but the compliance and regulatory side of things too. So yeah, it'll continue to close. And I think Coinbase's S1 just brought a lot of knowledge to the space about how many people in America are transacting and they publish those quarterly reports. And so that's been fascinating to see.

• 35:57Anthony Pompliano?

  How important is it the US tax regime versus like other countries? Are other countries this sophisticated, this kind of, the only one I can think of is overbearing, but that's kind of a negative connotation to it, but just, I think, so focused on this? Or is that a global thing? This happens in every single country and that's an opportunity for you guys?

• 36:17Speaker 02

  It'll vary country by country. Obviously, you know, some people are going to move off shores and there's some lenient countries out there. But overwhelmingly, I think probably 80% of the countries treat this as a capital asset that have some sort of gain and loss reporting associated with every transaction tied to it. And so the IRS has always been one of the highest enforcing tax governments in the world. But you've got the UK Tax Authority, the Australian Tax Office, the Canadian Revenue Agency. They're taking it seriously too. You're seeing UK subpoenas across popular platforms all the time. And so it's not US specific by any means.

• 36:53Anthony Pompliano?

  It sounds like, similar to institutions, institutions hated Bitcoin and cryptocurrencies until they figured out how they could make money from it. Now they love it, right? Governments are kind of the same thing, right? Of like, oh, we can't figure out how to like collect taxes or whatever. As they become more effective at doing that, should we anticipate more friendliness towards the industry, whether it's in the United States or elsewhere? Or it's just like, there's like almost like a financial incentive there?

• 37:18Speaker 02

  I think so, actually.

• 37:20Anthony Pompliano?

  Okay, yeah.

• 37:20Speaker 02

  I think in 2017, it almost felt like there was this conflict. You had industry and you had government. And just working firsthand with government here in 2021, it doesn't feel that way anymore. I know so many government people that are, that own Bitcoin themselves that are using it. And so it's feeling like as we, you know, make progress towards more regulatory compliance, that we're starting to bridge that gap. And that's, that's huge for the industry.

• 37:45Anthony Pompliano?

  Yeah, it feels like the financial incentive is very strong, right? If all of a sudden now a government can figure out how to make money from it, right? And make money is just taxation. There's likely to be that. But also, it also feels like it's kind of the jaywalking example, right? Jaywalking is technically illegal, but if you can't enforce it, is it really illegal in New York City? Eh, on paper, right? It's kind of been decriminalized to some degree, unless they really want to be a stickler, right? If you have rules around taxation and all of this, but you can't actually enforce it, are they real rules, right? And it feels like that is kind of where the evolution maybe is coming from. Which, you know, to be fair, and we should have said this at some point in the episode for sure,

• 38:28Anthony Pompliano?

  is like, there's a very big group of the crypto community that absolutely hates taxes, thinks taxation is theft and will do everything possible in their power to prevent taxation from increasing or being evaluated and carried out. I understand where they're coming from.

• 38:47Speaker 02

  Me too. I'm a CPA. I hate taxes. When I do my taxes at year end, yeah, it's not a pleasant thing.

• 38:52Anthony Pompliano?

  Yes, but it's the law.

• 38:54Speaker 02

  Exactly.

• 38:54Anthony Pompliano?

  Right? It's, um, it's kind of like the accreditation laws. I always say like, I think they're stupid. I think they should change.

• 39:02Speaker 02

  Yes.

• 39:02Anthony Pompliano?

  But I'm still only going to take money in a fund from accredited investors if that's what the rules say. Right? Because I don't want to get in trouble. Taxation feels similar to me. It's like, I don't actually don't know anybody who's like, increasing taxes is a good idea on just that premise. Now, maybe it's, you know, we should go do something with the money, whatever. Like, oh, you get into more of the political stuff. But taxation at its core, nobody likes it.

• 39:22Speaker 02

  Yeah.

• 39:23Anthony Pompliano?

  It's just, they don't want to get in trouble. And so that feeling overwhelms the feeling of hating taxes. For you guys, though, it almost feels you're taking a position of like, look, you said it, right? Like, I don't like taxes. But if that's going to be the rule, then like, let's help people make sure that they're compliant. Let's help people actually, in some cases, lower their taxes with the tax loss harvesting, right?

• 39:44Speaker 02

  That's it. How can, you know, we take this unsexy topic that people hate, even the professionals like myself, and make it a little bit more sexy. People like saving money. They like keeping the dollars that they've hard earned, that, you know, they're working every day for. They like keeping those in their pockets. And so how can we help people do that in a legal way, in a tax beneficial way to them? And so that's where I get really excited about our business is the end result of keeping people in compliance with the law in a way that, you know, is most beneficial for them.

• 40:15Anthony Pompliano?

  Yeah, it's absolutely fascinating. Before I let you go, two questions for you.

• 40:20Speaker 02

  Aliens again?

• 40:20Anthony Pompliano?

  Two opportunities. No, no, no. You've already answered all my dumb questions. If you had to pitch people right now, from a user standpoint, what's the pitch for why they should use TaxBit?

• 40:31Speaker 02

  So TaxBit, first and foremost, CPAs, tax attorneys founded, and we now have dozens of on our subject matter expert team, you're going to be in good hands. You're going to know that you have the most accurate solution out there. We've resolved thousands of IRS audits. We've got your back all the time. The IRS uses our software. Second, you're going to have human to human interaction. Our customer support team are real people in Salt Lake, in Seattle, not offshore. You're going to get the best of the best that really understand US taxation themselves. So you're going to have that experience. Third, the exchanges are using TaxBit. The platforms that you use are using TaxBit, many of them. And so just know that that whole ecosystem and the power and the seamlessness, we're improving. We just raised $100 million to make our software better each and every week.

• 41:15Speaker 02

  And so the TaxBit you use today is not going to be the TaxBit that you use three months from now. There's going to be so many new rollouts and things that just only get better. And so we're here for the long term. We're going to be doing this for the next decade plus. This is what we live and breathe and love. And so I hope our passion, you know, reflects to the community and we can help.

• 41:33Anthony Pompliano?

  All right. Second, that was a good pitch, by the way. Second pitch is to potential partners, exchanges, etc. What's the pitch to them as to why they should partner with us?

• 41:42Speaker 02

  You should absolutely reach out to us. Our enterprise page, as soon as you see a demo of how it's not just going to get you in compliance with the IRS, it's going to drive transaction volume, net new users, a better user experience natively to your interface, full liability on all of your information reporting. You know how many times founders are losing sleep on the exchange level of compliance on the tax side? We're taking that all on. We're that confident in everything we do. So, reach out to us. You'll see a demo and you're going to be hooked and you'll understand why so many of the leaders are quickly implementing.

• 42:13Anthony Pompliano?

  That was also a good pitch. I mean, listen, you gotta pay taxes whether you like it or not. You guys are helping individuals do that and lower their tax bills and you're helping exchanges and other infrastructure become more compliant and provide a better user experience. Kind of a no-brainer.

• 42:29Speaker 02

  It's a win-win for everyone.

• 42:30Anthony Pompliano?

  Yeah, I mean, it makes sense.

• 42:31Speaker 02

  Exactly.

• 42:33Anthony Pompliano?

  Who were the investors in the last round? Let's maybe finish up there.

• 42:36Speaker 02

  You. I mean, do we need to stop?

• 42:40Anthony Pompliano?

  I was like the smallest investor in the round.

• 42:42Speaker 02

  So, Tiger Global and Paradigm were the co-leads. And so, really, outstanding investors there.

• 42:48Anthony Pompliano?

  No one's ever heard of either one of those.

• 42:50Speaker 02

  I doubt it.

• 42:50Anthony Pompliano?

  Very small firms.

• 42:51Speaker 02

  Yeah, exactly. Incredible, helpful people there. And then we had an amazing syndicate from industry, Galaxy, PayPal, Gemini, Coinbase, and then just strong influencers such as yourself, Ryan Smith, the owner of the Jazz, Bill Ackman, a good friend of mine, great team over there, and so many others. I'm missing 30 others, literally. That's just spacing my mind, but powerful team.

• 43:16Anthony Pompliano?

  Yeah. It just feels like you've raised a lot of money. You've got the right people around the table now. And so, let's go.

• 43:22Speaker 02

  Let's do it. Let's go.

• 43:23Anthony Pompliano?

  All right. Taxbit.com is where we should send people?

• 43:25Speaker 02

  Yep, that's right. Follow us on Twitter as well.

• 43:27Anthony Pompliano?

  Ooh, follow on Twitter. I was like, he threw that in there. All right, man. Listen, thank you so much for doing this. We'll have to do it again in the future.

• 43:33Speaker 02

  Great to be here, Pomp.