The tax authority refuses to treat crypto staking rewards like it does similar property
The IRS is maintaining its stance on the taxation of cryptocurrency staking rewards, sparking continued legal challenges and debates. The agency insists that staking rewards should be treated as taxable income upon receipt, countering arguments from taxpayers advocating for these rewards to be taxed only when sold or exchanged.
This issue has gained attention due to a lawsuit filed by Joshua and Jessica Jarrett, who have been challenging the IRS since 2021. The couple initially sought to establish that staking rewards, like 8,876 Tezos tokens they earned in 2019, should be classified as property. Their argument compares these rewards to a farmer’s crops or an author’s manuscript, asserting that they should be taxed only when sold.
The IRS offered the couple a $4,000 tax refund in response, but they declined, aiming to set a broader legal precedent. The case was dismissed as moot due to the offered refund.
Undeterred, the Jarretts filed a second lawsuit in October 2024. This time, they are seeking a refund of $12,179 for taxes paid on 13,000 Tezos tokens earned in 2020 and a permanent injunction against the IRS’s treatment of staking rewards. They argue that newly created property, such as tokens earned through staking, should not be considered taxable income until sold.
The IRS, however, remains firm. According to its 2023 guidance, staking rewards are taxable at their fair market value as soon as they are created and the recipient can sell or exchange them. This policy aims to treat staking rewards similarly to other forms of income.
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