Last year in May 2021, Nashville residents Joshua and Jessica Jarrett filed a civil lawsuit against the Internal Revenue Service. The couple gained new 8,876 Tezos tokens through proof-of-stake in 2019. The IRS presumed these gained tokens as ‘new income’ for which the couple paid $3,293 as tax to the tax department.
According to the filed civil lawsuit, the Nashville couple requested a full refund of the tax amount of $3,293 paid to the tax department. This also includes the interest of $500 as compensation for lost income. The couple strongly focuses that tokens generated from proof of stake protocols should be considered as ‘new property’ created by the ‘taxpayers’. Such tokens should not be taxed until sold in a legal procedure. Also, under United States law and IRS, there are no rules and regulations, that claim created properties to be taxed as income.
As per the latest familiar sources, the couple has received a letter from the Department of Justice on Dec 20. announcing the full refund of their 2019 taxes against the tokens they earned. The IRS has approved to return of the full tax amount plus the statutory interest as demanded by the couple. Moreover, the Jarretts seems to be a little obnoxious about the refund as there is no assurance by the department that they will not tax the future earned tokens. However, they will take the case to the court to get long-term protection.
Notice 2014-21 by Internal Revenue Service
In light of the Notice 2014-21, issues by the IRS in public interest states,
“A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency measured in U.S. dollars, as of the date that the virtual currency was received.”By IRS, Notice 2014-21
Section 2 of Notice 2014-21 generated by IRS claims virtual currency that has equal value of real currency or that acts as a substitute of real currency are referred to as ‘convertible’ virtual currency. The department takes an example of Bitcoin (BTC) which can be digitally sold, purchased or exchanged by the users into US dollars ,or Euros ,or other real currencies. The document also covers ‘frequently asked questions’ in respect to the crypto trading and tax payment.
With respect to the aforesaid event, Jarretts have gained many supporters and crypto enthusiasts. These supporters, favor the lawsuit filed in the court and brace crypto earned through staking should not be taxed until sold.
What do you think of the taxing system on crypto currencies? As per your opinion how much tax should they charges from the users. Give your opinions in the comment section below.