Crypto Staking Taxes Under Fire as IRS Faces Legal Challenge

- IRS, considers staking rewards as income - Jarrett couple challenges taxation method of staking rewards [Unblock Media] Recently, as the IRS reaffirmed its tax policy on cryptocurrency staking rewards, the legal challenge by Joshua and Jessica Jarrett has drawn attention. This case is significant for understanding the relationship between the cryptocurrency market and regulation. Staking involves locking cryptocurrency in a smart contract to help operate a blockchain network. Through this, users verify transactions, protect the network, and receive additional cryptocurrency as a reward. According to the IRS guidance of 2023, staking rewards are classified as income at the moment they are generated, and taxes are levied based on the market value of the tokens at that time. The IRS's "Revenue Ruling 2023-14" specifies that when a taxpayer receives staking rewards, they must report them as income at their fair market value at the time of receipt. However, the Jarrett couple opposes this view, arguing that staking rewards should be considered new property and taxed only upon sale. They compare it to farmers who grow crops and only recognize income when they harvest and sell them. They have been pursuing litigation since 2021 and refused the IRS's offer to refund $4,000 in taxes related to the 8,876 Tezos tokens they received in 2019, choosing to continue their lawsuit. In their latest lawsuit, the Jarretts are seeking a refund of $12,179 in taxes paid on the 13,000 Tezos tokens received in the 2020 tax year, and they are requesting a permanent injunction against the IRS's tax handling method. The outcome of this case could set a precedent for how staking rewards are taxed within the US. Based on the legal ruling, tax policies related to staking rewards could change, potentially having a significant impact on the overall cryptocurrency market. For instance, if new tax policies become more favorable for staking rewards, more investors might seek to generate income through staking. Conversely, if taxation is strengthened, staking's investment appeal could diminish. Additionally, other countries like the EU and Japan are paying close attention to US regulations, which means US regulation could influence global regulatory frameworks. Whether staking rewards are subject to taxation is an important issue for cryptocurrency investors, as it will provide key insights into future US cryptocurrency tax policies and global regulatory frameworks.