The IRS may not tax staking prizes until they are sold, according to a recent court decision
The Nashville couple’s argument against the IRS contrasted unclaimed and unsold crypto awards to an unsold book by a writer, and they would be compensated with a return of tax paid plus interest.
A Nashville couple’s case against the Internal Revenue Service (IRS) for taxes spent on unclaimed and resold Tezos staking prizes has been settled, with the IRS agreeing to grant them a refund.
The ruling might provide a precedent for future advice on the taxation of crypto earnings received via staking. At the moment, Proof-of-Stake staking rewards are categorised as income and are subject to taxation at the time they are earned. According to the current development, they should be taxed only when they are sold for USD.
In May 2021, the Jarretts filed a protest against the United States government, claiming that the 8,876 Tezos (XTZ) tokens they produced in 2019 were not income and should not have been taxed as such. Additionally, the lawsuit said that the government was doing something “unique” by taxing “creative activity” rather than revenue.
“Taxing freshly made cakes, books, or tokens as income would have far-reaching and deleterious consequences for taxpayers and the US economy, and is not supported by the Internal Revenue Code, regulations, case law, or the Constitution.”
According to court records set to be made public on Thursday, the IRS said that it would honour the Jarretts’ request for a refund of $3,793 plus “statutory interest as permitted by law” for their unclaimed prizes last year.
As of now, there is no advice on how to tax unclaimed staking rewards. The IRS requests information from taxpayers on whether they have “received, sold, swapped, or otherwise disposed of any financial interest in any virtual currency,” but none of those terms seem to apply directly to the Jarretts’ unsold and unclaimed awards.
According to Forbes, people familiar with the subject indicate that the couple intends to push the case further in court in order to secure longer-term protection and establish a national precedent. American taxpayers are probably hoping that no legislative reaction to this court decision mirrors the UK regulator’s recent crypto staking instructions. There, staking cryptocurrency is often treated as a sale of tokens, triggering capital gains tax.