We have previously reported (here and here) on the refund lawsuit that a couple, the Jarretts, brought against the U.S. Internal Revenue Service. Mr. Jarrett produced Tezos tokens, a form of cryptocurrency, through a process known as “staking” — a system being used by more and more blockchains. As Jarrett saw things, staking uses existing Tezos tokens and computing power to produce new tokens. Thus, he argued, he would owe taxes on the tokens only…
In Revenue Ruling 2023-14, issued July 31, 2023, the IRS ruled that a cash-method taxpayer that receives additional units of cryptocurrency as rewards for validating transactions on a proof-of-stake blockchain must recognize the fair market value of the validation rewards as income in the taxable year in which the taxpayer gains dominion and control over the validation rewards. This is broadly consistent with the IRS views previously expressed on the treatment of mining income. In…
We previously reported about a case in which a Tennessee couple, the Jarretts, sued the U.S. Internal Revenue Service seeking a refund for taxes they paid on Tezos tokens that they earned through staking. On February 14, 2022, the IRS delivered the requested refund with interest, thinking that would end the lawsuit. But the Jarretts “rejected” the refund and argued that their lawsuit should continue. The IRS has now moved to dismiss the case. One…
According to the Coinbase website, “staking” is “the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards.” On May 26, 2021, a Tennessee couple sued the IRS seeking a refund for taxes they paid on Tezos tokens that they earned through staking. As explained in their complaint: The Tezos public…