The Internal Revenue Service (IRS) has recognized that staking profits are not subject to income tax unless denominated in USD and are prepared to reflect this in future tax rules.
The U.S. District Court for the Middle District of Tennessee has ruled that the IRS is required to refund the Jarretts the tax credits they paid as Tezos (XTZ) staking income tax. In May 2021, Joshua and Jessica Jarrett filed a lawsuit alleging that the 8,876 XTZ they earned by staking in 2019 were not sold, and therefore no income or profit was generated from these crypto assets. . The IRS said it would reimburse the Jarretts for $3,793 in tax credits with “statutory interest.”
There is no guidance in US tax law on how to tax unclaimed staking rewards. Therefore, to avoid potential litigation, the IRS asked taxpayers whether they “received, sold, exchanged, or otherwise disposed of with any financial interest the income from staking cryptocurrencies.” So far, the IRS has not received any notification from taxpayers that they have paid taxes on their staking income.
This court decision could be the basis for recommendations on how cryptocurrency rewards derived from staking will be taxed. Now in American law they are classified as income and tax is paid as they are received. The new rules suggest that they should only be taxed when they are sold for US dollars.
Last month, IRS investigators said that non-fungible tokens are “ripe” for use in illegal activities, and celebrities are contributing to this by promoting them. As Bloomberg previously reported, the IRS believes billions of dollars of taxes are being evaded by NFT investors. In addition, last November, the IRS reported that in the most recent fiscal year from October 1, 2020 to September 30, 2021, the agency seized $3.5 billion in cryptocurrencies, representing 93% of total seized funds.
