IRS Will Not Tax Unsold Staked Crypto As Income

The IRS’s decision to refund taxes paid on staking rewards might have far-reaching consequences for how proof-of-stake miners and stakers are taxed in the future.

The IRS’s decision to reimburse a Nashville couple’s taxes on unsold Tezos tokens is expected to clarify the taxation of staked cryptocurrency.

According to those familiar with the case, the IRS has agreed to reimburse the couple’s taxes paid on incentives earned — but not redeemed — through staking on the Tezos network.

According to a court complaint filed on May 26, 2021, Joshua and Jessica Jerrett claimed a refund of $3,293 in income tax paid in 2019 for the receipt of 8,876 Tezos tokens in May 2021 with the US District Court for the Middle District of Tennessee. In addition, the pair requested a $500 increase in tax credits for lost income.

Tokens obtained through proof-of-stake protocols are taxpayer-created property, according to the Jerretts, and should not be taxed until sold or exchanged. According to the lawsuit, nothing in US law or the IRS code and rules authorizes taxpayer-created property to be taxed as income.

The ruling might have far-reaching consequences for how proof-of-stake miners and stakers are taxed in the future.

On Thursday, official court files are likely to be made public.

An IRS spokesperson declined to comment.

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