The IRS reaffirms its position on the taxation of staking rewards🚨🚨🚨🚨🚨🚨🚨🚨
According to Cointelegraph, the Internal Revenue Service (IRS) has maintained its stance that rewards from cryptocurrency staking activities are subject to taxes at the time of receipt, countering a legal challenge that sought to defer taxation until these rewards are sold or exchanged. This position was reiterated in response to a lawsuit filed by Joshua and Jessica Jarrett, who argued that staking rewards should be considered new property and taxed only at the time of sale. However, the IRS insists that these rewards are taxable income at their fair market value once the recipient has the ability to sell, exchange, or otherwise dispose of them.
Staking involves locking cryptocurrencies in a wallet to support the operation of a blockchain, which in turn helps verify transactions and secure the network. Participants earn rewards, typically in the form of additional cryptocurrencies, as a form of passive income. The IRS's 2023 guidance classifies staking block rewards as income from the moment they are created, with taxes based on the estimated market value of the tokens at that time.
The Jarretts' legal battle with the IRS began in 2021 when they filed a lawsuit over 8,876 Tezos tokens earned as staking rewards in 2019. They argued that these tokens should be treated like a farmer's harvest or an author's manuscript, considered property and taxed only at the time of sale. The IRS offered a $4,000 tax refund, which the Jarretts rejected, seeking to establish a legal precedent for all proof-of-stake networks. The court dismissed the case, citing that the refund made the matter irrelevant.