A Nashville (state capital of Tennessee) couple sought a refund from the Internal Revenue Service (IRS) and registered a complaint with the U.S. District Court for the Middle District of Tennessee.
Joshua and Jessica Jarrett, The Nashville couple, claim that mining or staking coins are not taxable until traded because they establish the creation of property. Neither the Internal Revenue Code, regulations, case law, and the Constitution permits the treatment of created property as income.
This is the first significant lawsuit filed against the IRS linked to crypto staking rewards. The cryptocurrency that is the subject of this case is known as “Tezos”.
According to a legal complaint shared by a spokesperson for the Proof of Stake Alliance (POSA), the couple requested reimbursement of income tax paid in 2019, equaling $3,293 for the receipt of 8,876 Tezos tokens.
The Jarrett’s are additionally looking for a $500 expansion in tax breaks for lost income. POSA is an advocacy group striving to bring legal and supervisory transparency to Proof of Stake (PoS) technology.
Like a baker who bakes a cake using ingredients and an oven or writes a book using Microsoft Word and a computer, Mr. Jarrett created Property. Like the baker or the writer, Mr. Jarrett will realize taxable income when he first sells or exchanges the new Property he made, but the federal income tax law does not permit the taxation of the Jarretts simply because Mr. Jarrett made new Property.
Mentioned in a complaint document, to back up the case, The couple referred to a 1920 Supreme Court case that held that pay should include a “coming in.” Property made by a citizen doesn’t “come in,” yet instead goes out, they expressed.
Another 1955 decision where the court described pay as “occurrences of obvious promotions to riches, unmistakably acknowledged, and over which the taxpayers have complete dominion.”
David L. Forst, Tax Group of Fenwick & West LLP and Jarrett’s lawyer, stated that there is “100 years of tax law” as a legal precedent that newly created property is not taxed.
The IRS has yet to publish precise administration on the taxation of crypto assets where staking is involved. Four lawmakers wrote to the agency in July 2020 requesting affirmation that stakers would not face tax liabilities for receiving block rewards until those rewards are sold.
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