Joshua and Jessica Jarrett, a couple from Nashville, are filing a lawsuit against the IRS after being taxed for the rewards earned from crypto staking on the Tezos blockchain.
According to the lawsuit, Joshua and Jessica Jarrett seek an income tax refund of $3,293 in total for the 8,876 tokens mined. The couple is also looking for a $500 increase in tax credits after the income they lost.
Legal Complaint Against IRS Supported By PoS Alliance
The legal complaint filed by the couple was shared by a representative of the Proof of Stake Alliance (POSA), a group focused on evaluating the regulatory and legal framework surrounding PoS technology. This filing will be the largest lawsuit that will be filed against the agency.
The lawsuit includes lengthy details on how those who contribute to the Proof of Stake (PoS) blockchain will be taxed for the received tokens. Users of PoS protocols are expected to increase after the Ethereum blockchain shifts to a PoS framework, which is expected to happen towards the end of the year.
According to the couple, the taxes were not warranted until the Tezos tokens were sold or exchanged. The document also states that according to the federal income tax laws, agencies are not permitted to tax the crypto tokens created through staking activities.
Crypto Staking Rewards: Taxes Should only Apply after Sale
The document also illustrates how it was not practical to tax a property until it was sold.
“Like a baker who bakes a cake using ingredients and an oven or a writer who writes a book using Microsoft Word and a computer, Mr. Jarrett created a property.” These parties are only taxed when they have sold the properties they have been created. Following this argument, it means that the Jarrett’s were only open to tax when they sold or exchanged the property.
The issue also created a heated debate on Reddit, with some users debating whether gold is taxed when unearthed or the taxation applies after the sale.
According to the founder of POSA, Evan Weiss, the issue raised in the complaint was of economic importance. If wrong policies were formulated, it would shift innovation in the sector.
The IRS is yet to respond to the tabled allegations against it, given that it has not provided a solid framework for the process. However, some lawmakers have tabled a motion requesting the agency to exempt stakers from tax liabilities until they sold their rewards.
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