IRS proposed to include crypto tax on staking

Crypto tax on crypto staking:

The US Internal Revenue Service (IRS) has stated that rewards from staking cryptocurrencies should be taxed when received, according to a filing on Monday. This declaration came in response to a lawsuit filed by Joshua and Jessica Jarrett, who argued that such rewards should only be taxed once they are sold or exchanged. The IRS firmly rejected this argument, emphasizing that staking rewards are taxable income upon receipt, as detailed in a Bloomberg report.

The lawsuit by the Jarretts challenges Revenue Ruling 2023-14, which mandates that staking rewards be included in a person's gross income for the tax year in which they are received. The IRS reiterated that staking is considered earnings and must be reported at their fair market value when the taxpayer gains the ability to sell or exchange them. Staking involves locking up cryptocurrency to support blockchain operations, such as verifying transactions, and investors earn rewards for contributing to network security, making it a popular way to generate passive income.

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The legal dispute between the Jarretts and the IRS dates back to 2021. The couple sought a refund of $3,293 for taxes paid on 8,876 Tezos tokens earned through staking in 2019. They argued that these tokens should not be taxed until they are sold. Initially, the IRS offered a refund, but the Jarretts declined, seeking a legal precedent for the taxation of staking rewards. Although the case was dismissed by the Sixth Circuit in August 2023 after the IRS issued a full refund, the Jarretts filed a new lawsuit in October to challenge the IRS's stance on staking taxes.

The IRS's position on crypto staking comes at a time of significant developments in the crypto industry. The industry recently celebrated the re-election of Donald Trump, which many see as a positive signal for less restrictive crypto regulations. Additionally, the resignation of SEC Chair Gary Gensler, known for his stringent approach to digital assets, has further fueled optimism within the crypto market for a more favorable regulatory environment in the future.

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These recent events have stirred hope among crypto enthusiasts for a more supportive regulatory climate in the coming years. The IRS's firm stance on taxing staking rewards highlights the ongoing challenges and evolving landscape of cryptocurrency regulation in the United States.