Jarretts Challenges IRS on Staking Tax Treatment in Federal Court
Josh Jarrett, a stakeholder in the Tezos network, and his spouse, Jessica Jarrett, have re-filed a complaint against the Internal Revenue Service of the United States regarding the tax treatment of their tokens. The Jarretts contend that their staking-created tokens should be considered property and subject to taxes only when they are sold, rather than before, in a new lawsuit they filed on October 10 in a federal court in Tennessee. They contended that staking tokens is the same as growing a crop, writing a paper, or manufacturing a product, where no revenue is generated until it is sold since no one else has previously possessed them.
New property is not taxable income; instead, taxable income arises from the proceeds from the sale of that new property. In all other contexts, the IRS recognizes that new property is not taxable income,
the Jarretts
The IRS was sued by the Jarrett family in 2021 for 8,876 Tezos tokens that were obtained as incentives for staking in 2019. They paid the IRS the $9,407 anticipated tax obligation instead of exchanging or selling the tokens at that time. They later sued, claiming that their lower income had caused them to be entitled to a $3,293 refund and a $500 increase in tax credits.
Jarretts Seek Permanent Injunction Against IRS Staking Tax Rules in Federal Lawsuit
In accordance with IRS guidelines from 2023, block rewards, such as staking, are listed as income as soon as they are created, and tax is due on the tokens’ projected market value at that time. The Jarrets are requesting a permanent injunction against the IRS classifying the tokens they produced as income, a declaration that prior federal income taxes were erroneously assessed, and a reimbursement for the $12,179 in taxes paid on the 13,000 Tezos tokens earned in the 2020 tax year.
Coin Center, a think tank in Washington, DC, supports the couple in their legal action. In a statement released on October 9, Coin Center stated that it supports the claim because tax rules, as well as how federal authorities interpret them, can significantly dissuade Americans from using permissionless technology and cryptocurrencies.
Some of that is unavoidable unless laws are changed, which is why we’ve championed legislative changes like the Virtual Currency Tax Fairness Act, which would create a de minimis exemption for small personal crypto transactions,
Coin Center
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