tl;dr
The IRS asserts that tokens received from crypto staking are taxable, contrary to investor Joshua Jarrett's lawsuit in Tennessee. Jarrett previously won a settlement in a similar lawsuit in 2022, but the IRS is now contesting his new claim. The outcome will impact a growing number of US crypto users...
IRS pursues crypto staking rewards, claiming they are taxable income
Lawsuit filed by investor Joshua Jarrett against IRS regarding taxation of tokens earned from crypto staking
Dispute over IRS's stance on taxing staking rewards, impacting US crypto users and industry
IRS argues staking should induce immediate tax liability, regardless of profit realization
Impact of IRS's evolving crypto policies and Jarrett's lawsuit on US crypto enthusiasts
The IRS asserts that tokens received from crypto staking are taxable, contrary to investor Joshua Jarrett's lawsuit in Tennessee. Jarrett previously won a settlement in a similar lawsuit in 2022, but the IRS is now contesting his new claim. The outcome will impact a growing number of US crypto users. The IRS argues that staking should incur tax liability at the time of activity and that it does not create new property. The agency has notably adjusted its crypto policies in 2023, hiring industry experts and utilizing AI tools for tax enforcement. The resolution of this dispute will have significant implications for the US crypto community.
The IRS claims that tokens received from crypto staking are taxable, rebuffing a Tennessee lawsuit from investor Joshua Jarrett. Earlier this year, Jarrett won a favorable settlement from a 2022 lawsuit, but the IRS seems willing to fight a new battle. Staking and restaking are on the rise in the crypto industry, and the verdict in this dispute will impact a growing constituency of US crypto users.
IRS PURSUES CRYPTO STAKING REWARDS
Jarrett, who filed this lawsuit against the IRS in October, argued that tokens earned from crypto staking should legally qualify as new property, not taxable income. The lawsuit claims to seek a refund of $3,293 in taxes paid on 8,876 Tezos tokens earned through staking.
In 2022, Jarrett filed a similar lawsuit. The dispute was resolved in Jarrett’s favor, but not in such a way that it created a legally binding precedent. Before the parties reached oral argument, the government granted Jarrett’s refund request and directed the IRS to schedule an overpayment. The government then moved to dismiss the case (claiming that the full refund resolved the dispute), which the district court sustained,” a law firm’s coverage of the incident stated. However, crypto staking has grown quickly in the space, and the IRS has revisited this stance. In 2023, it released Revenue Ruling 2023-14, claiming that staking rewards are part of a taxpayer’s gross income. Jarrett filed another lawsuit, but this time, the IRS is preparing to fight it.
The IRS argues that staking should induce a tax liability as soon as it’s conducted, regardless of when the profit is realized. It claims that staking activities do not create new property. The tax agency added that Jarrett “should have to pay taxes on the value of tokens upon receipt,” further clarifying its stance. With the year drawing to a close, tax agencies’ treatment of the crypto space is a particularly salient issue. Jarrett’s staking lawsuit is just one component: the IRS has significantly altered its crypto policies this year . The IRS created a new form to report gains, hiring industry experts and commissioning AI tools to crack down on tax evasion.
Currently, there is no further information as to how long this dispute might take or whether the two parties might resolve it with another settlement like in 2022. However, the result will impact a growing contingent of US crypto enthusiasts. If the IRS fails to defeat Jarrett’s argument on staking, it would represent a powerful win.