Regardless of the risk management approach chosen, effective risk governance for an investment includes tax risk management.

Taxes can effectively impair a trade or investment return if high, and reward if low. With this in mind consider the following trades and facts and circumstances:

On November 29, 2023, The Spot Market for Bitcoin for Bitcoin is trading at $30,000.00.

The December 29, 2023, Bitcoin Futures Contract is trading at $30,300.00

Initial Futures margin = $9,000.00 per contract

Commissions to trade the spot market and the futures market = 0

Variation Margin varies with the futures price on a Dollar per Dollar Basis. if the futures go up or down 1 dollar the variation changes the same.

Today, November 29th,the trader buys spot Bitcoin for $30,000.00 and simultaneously sells the December 29th Futures Contract at $30,300.00.

The trader will then be long the Spot Bitcoin and short December 2023 Futures.

At the December Expiration date, the trader will close out and liquidate all trades in the spot and futures market for Bitcoin. The spot price and the futures price for Bitcoin converge so that both are trading at $30,000.00 on December 29th at the time the futures expire and stop trading.

1. How would a citizen and resident of the Cayman Islands be taxed on the above transactions completed during the year 2023 by the United States IRS? Why?
2. Would it be any different if the natural person was a bona fide residentof Puerto Rico?
3. How would a natural person who was a US Citizen and Resident in Dallas Texas be taxed? What Internal Revenue Code Sections could apply to the tax treatment of the transactions ?