KEY POINTS

  • IRS offered refund to a couple on tax paid on crypto staking income
  • The couple has rejected the offer
  • This would set a precedent for crypto taxation

The U.S. IRS has agreed to refund tax a Nashville couple paid on income generated from staking crypto assets in what could set a precedent in the ongoing tax-filing season.

The decision followed a May 2021 civil lawsuit the couple brought about in a Tennessee court arguing that the taxed tokens were earned by "staking," using existing crypto holdings to help validate the creation of new tokens and earning a share of them.

In the lawsuit filed in the U.S. District Court for the Middle District of Tennessee, Joshua and Jessica Jarrett claimed that they had "created property" by "staking" and did not realize taxable income because they had not sold the 8,876 Tezos tokens gained.

The couple received a letter from the Department of Justice on December 20, 2021, that they would receive a full refund on their tax as well statutory interest, but the Jarretts' attorney declined the IRS's offer of a tax refund, alleging the agency made no assurances that they would not be taxed again in the future, Bitcoinist reported.

The couple aims to litigate the matter further in court to secure permanent protection against paying taxes on income earned via staking, Forbes reported, citing unnamed sources.

The IRS decision return $3,293 in income tax (including statutory interest) is expected to be released as court documents soon. The verdict could have far-reaching implications for how proof-of-stake miners and stakers are taxed on their incomes in the future.

The 2021 edition of the IRS form 1040 includes a line item inquiring filers if they have "received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency" during the year. The IRS has been trying to update its regulations to make cryptocurrencies and income arising from other digital assets taxable. But the regulations lack clarity.

The recent ruling sets precedent on the taxation of staked cryptocurrencies and how they would be taxed until sold. As per recent estimates, the industry is worth a whopping $18 billion.

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