The United States Internal Revenue Service (IRS) has maintained its position that cryptocurrency staking rewards are taxable income upon receipt, challenging claims that these rewards should be considered new property. This stance has been reiterated in the ongoing legal dispute involving Joshua and Jessica Jarrett, who argue for a different tax treatment for staking rewards.
The IRS issued a statement on December 23, stating that taxpayers must report staking rewards as income at their fair market value as soon as they are able to sell or exchange them. According to IRS Revenue Ruling 2023-14, these rewards are not viewed as newly created property but as income, similar to wages or dividends.
Staking, a process where cryptocurrency holders lock their assets in a smart contract to support blockchain operations, generates rewards in the form of additional tokens. While it has become a popular method for earning passive income in the crypto space, its tax implications have sparked major debate.
The Jarretts’ legal battle with the IRS began in 2021 when they filed a lawsuit over taxes paid on 8,876 Tezos (XTZ) tokens earned as staking rewards in 2019. The couple argued that these rewards should be treated as property, akin to crops harvested by a farmer or a manuscript written by an author, and taxed only upon sale.
The IRS initially offered the Jarretts a $4,000 refund to resolve the dispute, but they declined, seeking to establish a broader precedent for proof-of-stake networks. The court ultimately dismissed the case, deeming it moot due to the refund.
In October 2024, the Jarretts renewed their challenge with a second lawsuit, now seeking a $12,179 refund for taxes paid on 13,000 XTZ tokens earned in 2020. Their filing requests a permanent injunction against the IRS’s current tax policy, arguing that “new property” is not taxable income until sold.
This legal battle could have far-reaching implications for the cryptocurrency industry, especially for proof-of-stake networks. If the court rules in favor of the Jarretts, it could reshape how staking rewards are classified and taxed, potentially easing the burden on crypto investors.
As the case unfolds, the IRS’s firm stance underscores its commitment to treating staking rewards as immediate taxable income, a position that will likely continue to stir debate across the industry.
The post IRS Reaffirms Stance on Staking Rewards as Taxable Income Amid Legal Battle appeared first on TheCoinrise.com.
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