SEC Filing Document

Company: T. Rowe Price Active Crypto ETF
Ticker: 
CIK: 2089855
Filing Type: S-1
Document Type: S-1
Date Filed: 2025-10-22
Accession Number: 0001999371-25-015832
Exchange: 
SIC Code: 6221
SIC Description: Commodity Contracts Brokers & Dealers
URL: https://www.sec.gov/Archives/edgar/data/2089855/000199937125015832/activecrypto-s1_102225.htm

Chunk 46 of 56
Word Count: 1315
Character Count: 8154

Document Content:

any unrealized gain or loss, respectively, on Fund assets. For this purpose, the Fund will use a convention whereby unrealized gain or loss will be computed based on the lowest NAV of the Fund’s assets during the month in which Shares are issued or redeemed, which may be different than the value of the assets on the date of an issuance or redemption. The capital accounts as adjusted in this manner will be used in making tax allocations intended to account for differences between the tax basis and fair market value of property owned by the Fund at the time new Shares are issued or outstanding Shares are redeemed (so-called “reverse Code section 704(c) allocations”). The intended effect of these adjustments is to equitably allocate among Shareholders any unrealized appreciation or depreciation in the Fund’s assets existing at the time of a contribution or redemption for book and tax purposes.

The conventions used by the Fund, as
noted above, in making tax allocations may cause a Shareholder to be allocated more or less income or loss for U.S. federal income tax
purposes than its proportionate share of the economic income or loss realized by the Fund during the period such Shareholder held the
Shares. This mismatch between taxable and economic income or loss in some cases may be temporary, reversing itself in a later year when
the Shares are sold, but could be permanent. As one example, a Shareholder could be allocated income accruing after it sold its Shares,
resulting in an increase in the basis of the Shares (see “Tax Basis of Shares,” below). In connection with the disposition
of the Shares, the additional basis might produce a capital loss the deduction of which may be limited (see “Limitations on Deductibility
of Losses and Certain Expenses,” below).

Section 754 election.
The Fund intends to make the election permitted by section 754 of the Code, which election is irrevocable without the consent of the IRS.
The effect of this election is that when a secondary market sale of Shares occurs, the Fund adjusts the purchaser’s proportionate
share of the tax basis of the Fund’s assets to fair market value, as reflected in the price paid for the Shares, as if the purchaser
had directly acquired an interest in the Fund’s assets. The section 754 election is intended to eliminate disparities between a
partner’s basis in its partnership interest and its share of the tax basis of the partnership’s assets, so that the partner’s
allocable share of taxable gain or loss on a disposition of an asset will correspond to its share of the appreciation or depreciation
in the value of the asset since such partner acquired its interest. Depending on the price paid for Shares and the tax basis of the Fund’s
assets at the time of the purchase, the effect of the section 754 election on a purchaser of Shares may be favorable or unfavorable. In
order to make the appropriate basis adjustments in a cost-effective manner, the Fund will use certain simplifying conventions and assumptions.
In particular, the Fund will obtain information regarding secondary market transactions in its Shares and use this information to adjust
the Shareholders’ indirect basis in the Fund’s assets. It is possible the IRS could successfully assert that the conventions
and assumptions applied are improper and require different basis adjustments to be made, which could adversely affect some Shareholders.

Limitations
on Deductibility of Losses and Certain Expenses. A number of different provisions of the Code may defer or disallow the
deduction of losses or expenses allocated to Shareholders by the Fund, including but not limited to those described below.

A Shareholder’s deduction of
its allocable share of any loss of the Fund is limited to the lesser of (1) the tax basis in such Shareholder´s Shares or (2) in
the case of a Shareholder that is an individual or a closely held corporation, the amount which the Shareholder is considered to have
“at risk” with respect to the Fund’s activities. In general, the amount at risk initially will be a Shareholder’s
invested capital. Losses in excess of the amount at risk must be deferred until years in which the Fund generates additional taxable income
against which to offset such carryover losses or until additional capital is placed at risk.

Individuals and other non-corporate
taxpayers are permitted to deduct capital losses only to the extent of their capital gains for the taxable year plus $3,000 of other income.
Unused capital losses can be carried forward and used in future years, subject to these same limitations. Corporate taxpayers generally
may deduct capital losses only to the extent of capital gains, subject to special carryback and carryforward rules.

Expenses classified for U.S. federal income tax purposes as “miscellaneous itemized deductions,” generally including
investment-related expenses (other than interest and certain other specified expenses), are not deductible for non-corporate taxpayers. Although the matter is not free from doubt, we believe management fees the Fund pays to the
Sponsor and other expenses of the Fund will constitute non-deductible miscellaneous itemized deductions rather than expenses incurred in connection with a trade or business and will report these expenses consistent with that
interpretation.

For taxable years beginning on or before December 31, 2025, the Code imposes additional limitations on the amount of
certain itemized deductions allowable to individuals with adjusted gross income in excess of certain amounts by reducing the
otherwise allowable portion of such deductions by an amount equal to the lesser of:

•	3% of the individual’s adjusted gross income in excess of certain threshold amounts; or

•	80% of the amount of certain itemized deductions otherwise allowable for the taxable year.

For taxable years
beginning on or after January 1, 2026, the Code provides that the amount of the itemized deductions otherwise allowable for the
taxable year shall be reduced by 2/37 of the lesser of (1) such amount of itemized deductions, or (2) so much of the taxable income
of the taxpayer for the taxable year as exceeds the dollar amount at which the 37% rate bracket under Code section 1 begins with
respect to the taxpayer. Non-corporate Shareholders generally may deduct “investment interest expense” only to the
extent of their “net investment income.” Investment interest expense of a Shareholder will generally include any
interest expense accrued by the Fund and any interest paid or accrued on direct borrowings by a Shareholder to purchase or carry its
Shares, such as interest with respect to a margin account. Net investment income generally includes gross income from property held
for investment (including “portfolio income” under the passive loss rules but not, absent an election, long-term capital
gains or certain qualifying dividend income) less deductible expenses other than interest directly connected with the production of
investment income.

If the Fund incurs
indebtedness that is treated as allocable to a trade or business, the Fund’s ability to deduct interest on such indebtedness
allocable is limited to an amount equal to the sum of (1) the Fund’s business interest income during the year and (2) 30% of
the Fund’s adjusted taxable income for such taxable year. If the Fund is not entitled to fully deduct its business interest in
any taxable year, such excess business interest expense will be allocated to each Shareholder as excess business interest and can be
carried forward by the Shareholder to successive taxable years to offset any excess taxable income allocated by the Fund to such
Shareholder. Any excess business interest expense allocated to a Shareholder will reduce such Shareholder’s basis in its
Shares in the year of the allocation even if the expense does not give rise to a deduction to the Shareholder in that year.
Immediately prior to a Shareholder’s disposition of its Shares, the Shareholder’s basis will be increased by the amount
by which such basis reduction exceeds the excess business interest expense that has been deducted by such Shareholder.