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1. Primary fundraise

StageWhat happens in the NetFederal / CA tax resultWho files / paysWhen
Token owner sells newly-minted shares for USDCOwner receives cash; investors receive personal-token sharesNot taxable to either side at closing. Mirrors a corporation issuing stock: proceeds are a capital contribution, not income. Basis: investor’s cost; owner’s basis in newly-issued shares is zero.——

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2. Secondary sales (investor ↔ investor or investor → token-owner)

StageWhat happens on-chainFederal / CA tax resultWho files / paysForms & due dates
1. Seller transfers personal-token shares for USDCSeller gets cash; buyer gets the sharesSeller realises cap-gain / loss (short- or long-term)Seller1040 + Schedule D / CA 540 Schedule D (trade date)
2. Seller’s own personal-token shareholders receive a pre-tax dividend of the seller’s gainSmart contract “Distribute Gain” fires against SellerToken; USDC is paid out pro-rataOrdinary income to each recipient shareholder (it is a dividend, not a capital gain in their hands)Seller• ≤ $250 k lifetime raises: 1099-DIV (Box 1a), send by 31 Jan & e-file by 31 Mar • > $250 k: Schedule K-1 (Form 1065), deliver by 15 Mar (or on extension)
3. 2 % royalty auto-split (1.5 % token owner, 0.5 % NetworkToken treasury)Royalty recipients get USDC in their wallets.Ordinary income to each recipientToken owner1099-MISC (≤ $250 k) or K-1 (> $250 k)
Note: the seller is the only party that files the information return (1099-DIV or K-1) with the IRS. The shareholder receiving dividends does not re-file that form; they simply copy the numbers onto their own tax return and keep the form for their records. (as it works with real world dividends).

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3. Real-world equity sale by token owner (outside of Net)

FlowTax on the owner“Dividend” inside PTNTax on shareholdersCompliance mechanics
Owner realises capital gain outside the NetOwner pays federal & CA capital-gains tax on 100 % of the gain at the time of the sale.PTN rules require owner to sweep the gross gain (pre-tax) pro-rata to token holdersEach shareholder receives USDC. For them this is ordinary income, reported on 1099-DIV box 3 (non-qualified dividends). No capital-gains character passes through.Until $250 k lifetime raises: owner issues 1099-DIVs directly. After $250 k: the single-member CA LLC issues Schedule K-1s instead, converting payouts to partnership distributive share (thus shareholders shoulder their piece of the capital gain and the owner avoids double taxation). The Net spits out all forms ready to submit.

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Summarized

TaxPayerMoment
Federal & CA capital-gains tax on Company stock exit (outside of Net)Token owner / LLCTrade date
Federal & CA capital-gains tax on personal-token secondary saleSelling shareholderTrade date
Federal & CA ordinary-income tax on dividends from personal token walletEach receiving shareholderCash receipt
CA LLC franchise tax (only for personal token owners who have raised more than $250 k)Token LLCs (post-$250 k)15ᵗʰ day of 4ᵗʰ month; $800 min

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