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 45 of 56
Word Count: 1489
Character Count: 9009

Document Content:

tax treatment of the crypto assets. Based on CFTC determinations that treat bitcoin and ether as commodities under the Commodity Exchange Act, the Fund intends to take the position that the crypto assets qualify as commodities for purposes of satisfying the qualifying income exception under section 7704 of the Code. Further, in absence of guidance to the contrary, the Fund intends to take the position that income derived from the staking of Eligible Assets, if any, constitutes qualifying income for purposes of the qualifying income exception under section 7704 of the Code. Shareholders should be aware that the Fund’s position is not binding on the IRS, and no assurance can be given that the IRS will not challenge the Fund’s position, or that the IRS or a court will not ultimately reach a contrary conclusion, which would result in the material adverse consequences to Shareholders and the Fund discussed below.

The Fund’s taxation as a partnership
rather than a corporation will require the Sponsor to conduct the Fund’s business activities in such a manner that it satisfies
the requirements of the qualifying income exception on a continuing basis. No assurances can be given that the Fund’s operations
for any given year will produce income that satisfies these requirements.

If the Fund failed to
satisfy the qualifying income exception in any year, other than a failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case, as a condition of relief, the Fund could be required to pay the
government amounts determined by the IRS), the Fund would be taxable as a corporation for U.S. federal income tax purposes and would
pay U.S. federal income tax on its income at regular corporate tax rates. In that event, Shareholders would not report their share
of the Fund’s income or loss on their tax returns. Distributions by the Fund (if any) would be treated as dividend income to
Shareholders to the extent of the Fund’s current and accumulated earnings and profits, then treated as a tax-free return of
capital to the extent of a Shareholder’s basis in the Shares (thus reducing the Shareholder´s basis), and thereafter, to
the extent such distributions exceed the Shareholder’s basis in such Shares, as capital gain for Shareholders who hold their
Shares as capital assets. Accordingly, if the Fund were to be taxable as a corporation, it would likely have a material adverse
effect on the economic return from an investment in the Fund and on the value of the Shares.

The remainder of this summary assumes
that the Fund is classified for U.S. federal income tax purposes as a partnership that it is not taxable as a corporation.

U.S. Shareholders

Tax Consequences of Ownership of
Shares

Taxation of the Fund’s
Income. No U.S. federal income tax is paid by the Fund on its income. Instead, the Fund files annual partnership returns, and
each U.S. Shareholder is required to report on its U.S. federal income tax return its allocable share of the income, gain, loss, deductions
and credits reflected on such partnership returns. If the Fund recognizes income, including interest on cash equivalents and net capital
gains, Shareholders must report their share of these items regardless of whether the Fund makes a distribution of cash or property during the
taxable year. Consequently, a Shareholder may be taxable on income or gain recognized by the Fund but receive no cash distribution with
which to pay the resulting tax liability or may receive a distribution that is insufficient to pay such liability. Because the Sponsor
currently does not commit to make distributions, it is likely that a U.S. Shareholder that realizes net income or gain with respect to
Shares for a taxable year will be required to pay any resulting tax from sources other than Fund distributions. Additionally, individuals
with modified adjusted gross income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates
and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from
interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses).
Also included as income subject to the additional 3.8% tax is income from businesses involved in the trading of financial instruments
or commodities. Shareholders subject to this provision may be required to pay this 3.8% tax on interest income and capital gains allocated
to them by the Fund.

Monthly
Conventions for Allocations of the Fund’s Profit and Loss and Capital Account Restatements. Under
Code section 704, the determination of a partner’s distributive share of any item of income, gain, loss, deduction or credit
is governed by the applicable organizational document unless the allocation provided by such document lacks “substantial
economic effect.” An allocation that lacks substantial economic effect nonetheless will be respected if it is in accordance
with the partners’ interests in the partnership, determined by considering all facts and circumstances relating to the
economic arrangements among the partners. Subject to the possible exception for certain conventions to be used by the Fund as
discussed below, it is expected that allocations pursuant to the Trust Agreement should be considered as having substantial economic
effect or being in accordance with Shareholders’ interests in the Fund.

In situations where a partner’s
interest in a partnership is redeemed or sold during a taxable year, the Code generally requires that partnership tax items for the year
be allocated to the partner using either an interim closing of the books or a daily proration method. The Fund intends to allocate tax
items using an interim closing of the book’s method under which income, gains, losses and deductions will be determined on a monthly
basis, taking into account the Fund’s accrued income and deductions and gains and losses (both realized and unrealized) for the
month. The tax items for each month during a taxable year will then be allocated among the holders of Shares in proportion to the number
of Shares owned by them as of the close of trading on the last trading day of the preceding month (the “monthly allocation convention”).

Under the monthly allocation convention,
an investor who disposes of a Share during the current month will be treated as disposing of the Share as of the end of the last day of
the calendar month. For example, an investor who buys a Share on April 10 of a year and sells it on May 20 of the same year will be allocated
all of the tax items attributable to May (because it is deemed to hold the Share through the last day of May) but none of those attributable
to April. The tax items attributable to that Share for April will be allocated to the person who held the Share as of the close of trading
on the last trading day of March. Under the monthly allocation convention, an investor who purchases and sells a Share during the same
month, and therefore does not hold (and is not deemed to hold) the Share at the close of the last trading day of either that month or
the previous month, will receive no allocations with respect to that Share for any period. Accordingly, investors may receive no allocations
with respect to Shares that they actually held or may receive allocations with respect to Shares attributable to periods that they did
not actually hold the Shares.

By investing in Shares, a U.S. Shareholder
agrees that, in the absence of new legislation, regulatory or administrative guidance, or judicial rulings to the contrary, it will file
its U.S. income tax returns in a manner that is consistent with the monthly allocation convention as described above and with the IRS
Schedule K-1 or any successor form provided to Shareholders by the Fund.

For any month in which a Creation Basket
is issued or a Redemption Basket is redeemed, the Fund will credit or debit the “book” capital accounts of existing Shareholders
with the amount of 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.