- The IRS has stated that rewards earned from investing in cryptocurrencies should be taxed.
- The agency issued the statement in response to a lawsuit filed by couple Joshua and Jessica Jarrett.
- The lawsuit challenges Revenue Ruling 2023-14, which says crypto stake rewards should be taxable.
In a filing on Monday, the US International Revenue Service (IRS) said that rewards from cryptocurrency investments should be taxed, responding to a lawsuit filed by couple Joshua and Jessica Jarrett.
The tax administration insists on taxing crypto stakes
The IRS has declared that rewards from cryptocurrency investments are taxable upon receipt, according to a Bloomberg report on Monday, which noted that the agency rejected a legal argument that sought to delay taxation until such rewards are sold or exchanged.
The legal argument stems from a lawsuit filed by Joshua and Jessica Jarrett, a couple who argued that stake rewards should not be taxed when received.
The lawsuit seeks to challenge Revenue Ruling 2023-14, which mandates that wagering rewards must be included in a person’s gross income for the tax year in which they are received.
In its response, the agency emphasized that staking represents earnings and that it should be reported:
“Revenue Regulation 2023-14 requires taxpayers who receive investment awards to report the awards as income at their fair market value after they have the option to sell, exchange or otherwise dispose of them.”
Staking involves locking cryptocurrency in a smart contract to support blockchain operations, such as verifying transactions and securing the network.
Investors earn returns as compensation for contributing to the security of the network, making it a popular method of generating passive income from digital assets.
The litigation between Joshua and Jessica Jarrett and the IRS dates back to 2021 when the couple sought a refund of $3,293 in taxes paid on 8,876 Tezos tokens earned by investing in 2019. They argued that the tokens should not be taxed until they are sold.
The IRS initially offered a refund, but the Jarretts declined, wanting a legal precedent for taxing the stakes. In August 2023, the Sixth Circuit dismissed the case after the IRS issued a full refund.
However, the Jarretts filed a new lawsuit in October to challenge the taxes charged on the investment awards.
The IRS’ stance on the crypto investor comes amid celebration of the crypto industry’s recent achievements following November’s presidential election.
This includes the re-election of Donald Trump, which many see as a positive signal for less restrictive crypto regulations.
Furthermore, the resignation of SEC Chairman Gary Gensler, a figure often criticized for his tough stance on digital assets, fueled further excitement in the crypto market.
These developments have raised hopes for a regulatory environment conducive to crypto technologies in the coming years.
