Fitness coach and part-time crypto investor Josh Jarrett has taken a bold step in filing a lawsuit against the US Internal Revenue Service (IRS) over its tax policy on staking rewards. This legal battle, which was initiated on October 10, seeks to provide clarity on how the IRS treats staking rewards and prevent similar issues from arising in the future.
Jarrett’s decision to sue the federal agency stems from his 2020 staking rewards, which he believes should be treated as property and taxed only when sold. In his court filing, he argues that taxing staking rewards as income upon creation results in unnecessary complexity and over-taxation for individuals involved in staking activities.
Crypto staking, a process that allows token holders to act as validators in a Proof of Stake (PoS) network, involves locking tokens in a staking contract to earn digital assets for supporting the blockchain. Jarrett contends that just like farmers are not taxed when crops grow or miners when they find gold or silver, staking rewards should not be taxed as income when they are created.
The Washington, D.C.-based crypto advocacy group Coin Center has thrown its support behind Jarrett’s stance. The organization believes that the IRS’s current policy on staking rewards leads to over-taxation, compliance challenges, and stifles innovation in the crypto space. According to Coin Center, block rewards earned by validators when they add new blocks to a blockchain should be considered new cryptocurrency tokens and taxed only when they are sold.
In a statement, Coin Center emphasized that the IRS’s interpretation of tax laws can have a significant impact on the use of digital assets and permissionless technologies in the US. By advocating for a more straightforward and fair tax treatment of staking rewards, Jarrett and Coin Center hope to establish a precedent that benefits individuals engaged in staking activities and promotes innovation in the crypto industry.
As the legal battle between Jarrett and the IRS unfolds, the outcome could have far-reaching implications for how staking rewards are taxed in the US. By challenging the current tax policy and seeking clarity on this issue, Jarrett is paving the way for a more equitable and conducive environment for crypto investors and stakeholders.