Big-blockchain security providers who use proof-of-stake may soon have good news to report. Non-staked crypto is not taxed.
In May, a Nashville couple argued that proof-of-stake tokens are tax-free until sold or transferred. The refund option may help future POS tax explanations.
For POS Protocols, The Decision is a Win
Joshua and Jessica Jerrett filed a civil case in the US District Court for the Middle on May 26, 2021. The District of Tennessee will hear a request for a refund of $3,293 in income tax paid in 2019 in exchange for the delivery of 8,876 Tezos tokens.
In addition, to compensate for lost income, the couple requested a $500 increase in tax credits.
They got a letter from the Department of Justice on Dec. 20. The letter announced that the Internal Revenue Service (IRS) grants a complete refund of their 2019 taxes against the tokens they earned by staking on the Tezos network. It has also added statutory interest, according to sources familiar with the matter.
Staking awards will now treat as property rather than income, according to the new rule.
Despite their initial triumph, the Jarretts’ lawyers rejected the IRS’s offer of a tax refund on Jan. 25, alleging that the IRS gives them no promise that they would not tax again.
In other words, the Jarretts won the first round of their lawsuit (Jarrett et al v. United States of America), but only for their 2019 taxes.
They plan to take the case to court in the hopes of obtaining long-term protection. This might set a precedent for everyone interested in making money from bitcoin staking.
The decision could have far-reaching implications for how proof-of-stake miners and stakers tax in the future.
Should Crypto Income Be Taxed?
The IRS stated in Notice 2014-21 that a taxpayer who receives virtual currency as payment must include the fair market value of the virtual currency in computing gross income.
Cryptocurrencies should not tax until they are bought or exchanged, according to the Jarretts’ supporters.
Cryptocurrency stakes or locked up under certain conditions, for many reasons, the most popular being to earn tokens.
Serving as a validator in a proof-of-stake (PoS) network is the most prevalent. Validators in such networks risk their tokens as a form of insurance.
A proof-of-work network involves both capital and operational costs (machines and electricity). Both are anti-spam and anti-malware measures implemented by the distributed group of people who check network transactions.
From the Boston Fed and the University Of Virginia School Of Law, Sutherland wrote on Tax Notes in August 2020. If taxed at the time of production, the way PoS networks continuously dilute their coins disadvantages taxpayers.
Because the IRS considers cryptocurrencies to be property rather than currency, they are taxable in the US. It levied a tax ranging from 0% to 37%.
Some countries, including the Netherlands, tax cryptocurrency at a 31% rate. Only the profit realized on the sale of cryptocurrencies worth over $58,232 (51,645 euros) owes to the Italian tax authorities.
