IRS reignites cryptocurrency controversy: whether stake earnings should be taxed, POSA calls for 'stop sowing seeds of confusion'

The Internal Revenue Service (IRS) reiterated its tax regulations on cryptocurrency stake earnings in a legal response on 12/24. The IRS stated that stakeToken earnings are considered taxable income once they are subject to conditions such as "sale, exchange," etc., and the tax due needs to be calculated based on the market price at that time. Whether cryptocurrency stake earnings should be taxed has once again become a hot topic of discussion.

Staking rewards are recognized as taxable income.

According to the IRS's 2023 legal guidelines, stake earnings are returns for on-chain participants who assist in verifying transactions and maintaining the network. Once these earnings are generated, they will be recognized as taxable income and taxed based on market value.

stake (Staking): Users lock a certain amount of Cryptocurrency in a smart contract to participate in protecting and running the blockchain network. During the participation process, they will receive certain rewards and returns.

IRS regulations: US tax law '2023-14' requires taxpayers to include the market value of stakeToken in their income when selling or disposing of them.

Jarrett couple's legal challenge

The most classic stake income tax dispute in the past was the tax dispute of the American Jarrett couple. It can be traced back to 2021, when the two sued the IRS for the 8,876 Tezos (XTZ) Tokens they received in 2019, arguing that these Tokens should be treated as new assets rather than taxable income.

First lawsuit: The couple claimed that the Token obtained by stake is like "crops" or the "manuscript" of a writer, and only needs to be taxed when sold. However, the IRS offered a $4,000 tax refund to the couple in an attempt to settle the case, but it was rejected by the couple, and the case was eventually dismissed by the prosecutor for 'no practical benefit'.

The second lawsuit: In October 2024, the Jarretts once again sued for the return of $12,179 in taxes on the 13,000 Tezos Tokens obtained in 2020, and sought a permanent injunction against the IRS's current taxation policy on stake earnings.

The couple has always believed that "new assets are not taxable income, and only the profits after the sale belong to the taxable category." At present, both parties are still in litigation, the case has not been concluded, but this tax dispute may set an important legal precedent for the tax treatment of US digital asset stake behavior.

The couple will file a lawsuit again in 2024. The Equity Proof Alliance also supports the couple.

The income from stake should be considered as taxable income, which not only affects the Jarrett couple, but also other cryptocurrency enthusiasts and businesses. The Proof of Stake Alliance, composed of multiple blockchain projects, also supports the Jarrett couple, and calls for 'The handling of stake income should not be the same as any other newly created assets, and hopes the government will stop sowing the seeds of chaos.'

Proof of Stake alliance for the couple's support.

(Multiple projects jointly established the Proof of Stake Alliance, committed to engaging with regulatory bodies in dialogue)

The US Internal Revenue Service (IRS) rekindles controversy over cryptocurrency: whether stake earnings should be taxed, POSA calls for 'stopping sowing seeds of chaos'. This article first appeared on Chain News ABMedia.