Ethereum, Other Crypto Stakers, Miners Rejoice — The IRS Will Not Tax Unsold Tokens After All

The Internal Revenue Service will not tax unsold tokens — a major relief for both cryptocurrency stakers and miners.

What Happened: Joshua and Jessica Jarrett, a couple from Nashville, Tennessee, filed a legal complaint in a district court requesting a refund on $3,293 of income tax paid for the receipt of 8,876 Tezos XTZ/USD tokens. The duo also asked for a $500 increase in tax credits, citing lost income, according to a Blockworks report. 

The Nashville couple has prevailed and a decision has been made to refund them.

See Also: How To Buy Ethereum (ETH)

Why It Matters: “The federal income tax law does not permit the taxation of tokens created through a staking enterprise,” read the complaint filed by the Jarretts.

“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 property. Like the baker or the writer, Mr. Jarrett will realize taxable income when he first sells or exchanges the new property he created, but the federal income tax law does not permit the taxation of the Jarretts simply because Mr. Jarrett created new property,” as per the complaint.

Singapore-based Three Arrows Capital co-founder Zhu Su said on Twitter that it was “very good news for [proof-of-stake] stakers in the U.S.”

Very good news for PoS stakers in the US, and sets a constructive precedent globally as well https://t.co/jnY7zSvRLM

— Zhu Su  (@zhusu) February 3, 2022

The proof-of-stake or PoS model allows coin owners to stake them and create validator nodes in effect allowing users to pledge coins that can then be used to verify transactions. The coins are locked while this happens, but can earn rewards during the time they remain staked.

The total value locked in Ethereum 2.0’s contract alone at press time was 9,280,978 ETH, which is worth a whopping $24.86 billion, according to Glassnode data.

The recent development also has implications for airdrop tokens like LooksRare LOOKS/USD, which allows users to earn by staking.

Previously, the IRS in its 2014-21 notice had said that when a taxpayer mines virtual currency, the fair market value of the currency as of the date of receipt can be included in gross income. No specific mention of staking was made in the notice.

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