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A bill has also been proposed before the House of Representatives that seeks to ensure that taxes on staking rewards would only be applied when the tokens are sold.
Key Notes
IRS taxed staking rewards as income at receipt, sparking legal backlash.Jarrett argues staking rewards should only be taxed after sale, citing overtaxation concerns.The US Internal Revenue Service (IRS) has once again been dragged to court for the way it taxes crypto-staking rewards. This follows after Josh Jarrett filed yet another lawsuit on Thursday, complaining about the agency’s approach, specifically the way taxes block rewards as income at the time of receipt.
Jarrett filed the new lawsuit in conjunction with Coin Center.
Why Is the US IRS Being Sued?
In the Thursday filing, the complainants argued that the IRS views block rewards as taxable income at the exact moment they are received. However, that is nothing but an unjust policy that should not be so, according to Jarrett and Coin Center.
For clarity, block rewards are newly minted tokens of a cryptocurrency that validators earn for their role in building a blockchain.
Per the lawsuit, these block rewards should only be considered new property and not income. Jarrett and Coin Center argue that the IRS should only tax the rewards after they have been sold or converted to cash.
In his arguments, Jarrett compared block rewards to other forms of newly created property such as crops or minerals. He then submitted that the same policies that tax them only after being sold should extend to block rewards.
According to the lawsuit, taxing staking rewards before they are sold is illogical. It often amounts to over-taxation while placing unnecessary regulatory burdens on node operators, the suit noted.
Taxing Crypto Staking Rewards: Its Impact on Bitcoin Users
Meanwhile, it might be worth mentioning that this is not Jarrett’s first attempt at suing the IRS in court. Back in 2021, Jarrett and his wife sought the court’s intervention when the agency failed to explain how staking rewards were taxed.
Although the US IRS refunded the couple for the previous year’s tax payment, it still did not issue any clear instructions for the tax years that followed.
By 2023, however, against all expectations, the IRS came up with a new guideline, saying that staking rewards would be considered as income when received.
This stance, without a doubt, affects many Bitcoin users and others like Jarrett, who use other cryptocurrencies that use the proof-of-stake system such as Tezos.
As pointed out in the lawsuit, this approach by the Internal Revenue Service forces taxpayers to value their rewards based on policy. That is, whether they plan to sell such rewards or not.
Notably, a bill has been proposed before the House of Representatives that seeks to ensure that taxes on staking rewards would only be applied when the tokens are sold.
So, it remains to be seen if there will be any policy changes resulting from the ongoing legislative efforts as well as this new lawsuit.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
Mayowa is a crypto enthusiast/writer whose conversational character is quite evident in his style of writing. He strongly believes in the potential of digital assets and takes every opportunity to reiterate this. He's a reader, a researcher, an astute speaker, and also a budding entrepreneur. Away from crypto however, Mayowa's fancied distractions include soccer or discussing world politics.
