The IRS reiterated its tax regulations on cryptocurrency staking rewards in a legal response dated 12/24. The IRS stated that once staking tokens are under conditions such as 'sale or exchange', the rewards from staking will be considered taxable income and must be calculated based on the market price at that time. Whether cryptocurrency staking rewards should be taxed has again become a hot topic of discussion.
Staking rewards recognized as taxable income
According to the IRS's 2023 legal guidelines, staking rewards are returns for on-chain participants who assist in verifying transactions and maintaining the network. Once these rewards are generated, they will be recognized as taxable income and taxed based on market value.
Staking: It is when users lock a certain amount of cryptocurrency in a smart contract to participate in the protection and operation of the blockchain network. During this process, they will receive certain rewards and earnings.
IRS Regulations: The U.S. tax decree '2023-14' requires taxpayers to include the market value of sold or processed staking tokens in their income for tax purposes.
Legal challenges of the Jarrett couple
The most classic tax dispute regarding staking rewards is the tax dispute of the Jarrett couple in the U.S., which dates back to 2021, when the couple sued the IRS over the 8,876 Tezos (XTZ) tokens obtained from staking in 2019, arguing that these tokens should be considered new assets and not as taxable income.
First lawsuit: The couple argues that the tokens obtained from staking are like 'crops' or a writer's 'manuscript', which should only be taxed upon sale. However, the IRS provided a tax refund of $4,000 to the couple and attempted to settle, but the couple rejected it, leading the case to be dismissed by the prosecution on the grounds of 'no beneficial outcome.'
Second lawsuit: In October 2024, the Jarrett couple again filed a lawsuit to refund $12,179 in taxes for the 13,000 Tezos tokens obtained in 2020, seeking a permanent ban on the IRS's current taxation policy on staking rewards.
The couple firmly believes that: 'New assets are not taxable income; only the earnings from sales fall within the taxable category.' Currently, both parties are still in litigation, and the case has not yet been settled, but this tax dispute could set an important legal precedent for the tax treatment of staking activities for digital assets in the U.S.
The couple's lawsuit documents again in 2024. The Proof of Stake Alliance also supports the couple.
The issue of whether staking rewards should be considered taxable income affects not only the Jarrett couple but also other cryptocurrency enthusiasts and businesses. The Proof of Stake Alliance, composed of multiple blockchain projects, also supports the Jarrett couple, stating that 'the treatment of staking rewards should not be the same as any other newly created asset, and we hope the government will stop sowing the seeds of chaos.'
The Proof of Stake Alliance supports the couple.
(Multiple projects jointly established the Proof of Stake Alliance, committed to engaging in dialogue with regulatory authorities)
This article discusses the IRS's renewed cryptocurrency controversy: Should staking rewards be taxed? POSA calls for 'stopping the sowing of chaotic seeds,' first appearing in Chain News ABMedia.
