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Unsold Crypto Case Victory Against IRS Could Set Precedent for Regulation Laws

Unsold Crypto Case Victory Against IRS Could Set Precedent for Regulation Laws

One Nashville couple’s case against the IRS trying to tax their unclaimed crypto as income could have a significant impact on the US regulations.

In an unprecedented case, a Nashville couple went against the Internal Revenue Service (IRS) to get a refund on their taxed crypto. The couple argued that their unclaimed and unsold Tezos staking rewards should not be taxed as income, Forbes reported.

The IRS has agreed to issue the couple a refund – a decision that could completely change the way taxes and regulations apply to cryptocurrency rewards earned via staking. At the moment, the law sees staking rewards as income, and appropriate taxes apply when these rewards are gained.

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As an aftermath of the case, it’s possible that crypto staking rewards will only be taxed after the owner sells them for USD.

According to court files, Joshua and Jessica Jarrett “baked”—the term for staking used within the Tezos ecosystem—8,876 Tezos (XTZ) in 2019, which they reported as “other income” on their tax form. The couple had to pay $3,293 on the $9,407 that their XTZ was worth at the time. Currently, this amount would be worth over $34,000.

The complaint was officially filed in May 2021, stating that the cryptocurrency should not have been taxed as income. The Jarretts argued:

The United States here seeks to use the federal income tax law to do something unprecedented, which is tax creative activity rather than income. Taxing newly created cakes, books, or tokens as income would have far-reaching and detrimental effects on taxpayers and the U.S. economy.

Based on court filings expected to be made public Thursday, the IRS would refund the total taxed amount “with statutory interest as provided by the law.” 

While the US government has set some regulatory measures in place for crypto, there is little guidance on taxing unclaimed staking rewards. Taxpayers have to report if they have “received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency.” However, these criteria may not properly fit unsold and unclaimed rewards.

The aftermath of this case will likely already be noticeable in the upcoming months, as half of all Bitcoin owners are filing taxes on their cryptocurrency for the first time, based on a Grayscale survey.

Aaron S., Editor-In-Chief
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.
Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.
Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.

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