After a Court Battle, the IRS Might Not Impose Income Taxes on Unsold, Staked Crypto

The United States Internal Revenue Service (IRS) could stop taxing digital assets obtained through staking. The agency added that it will refund the tax paid by a Nashville couple on tokens they had earned via staking on the Tezos network.

IRS to Refund Tax Paid on Staked Tokens

According to a Forbes report on Thursday, the IRS noted that it will refund the $3,293 in income tax and statutory interest the couple paid on their staked 8,876 Tezos (XTZ) tokens.

In May 2021, the couple, Joshua and Jessica Jarret, filed a civil lawsuit with the U.S. District Court for the Middle District of Tennessee. They demanded a refund of the $3,293 income tax they paid in 2019 on 8,876 XTZ tokens acquired from staking.

The couple also insisted that they be compensated for lost income by a $500 increase in tax credits.

Staked Tokens Should Not Be Taxed

In the court filing, the Jaretts noted that tokens obtained through proof-of-stake protocols should be considered “new property” created by the taxpayer, not as income. Therefore, this new property should not be taxed until it is sold or exchanged for a “readily accessible form of wealth.”

While the couple won the case against the IRS, allowing them to get a refund of their 2019 tax on staked tokens, it remains unclear at the moment if the agency has any plans to update its official guidance on crypto taxes.

However, according to confidential sources familiar with the matter, the Jaretts intend to pursue the case further in court to enable them to obtain long-term protection.

Setting Precedents

This move by the couple might set a precedent for anyone who wishes to profit from the rapidly growing cryptocurrency staking industry, which is currently estimated to be worth over $18 billion.

Still on the topic of crypto taxes, the Indian government could soon drop earlier plans to ban digital currencies in the country. Instead, the nation’s authorities moved to provide regulatory clarity on the cryptocurrency market with a 30% tax on such income.