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IRS Can’t Tax Strike Rewards Until They’re Sold

A Nashville couple’s lawsuit over taxes they paid on unclaimed and unsold Tezos strike awards is coming to an end as the Internal Revenue Service (IRS) agrees to give them a refund. The decision could set a precedent for future guidance on how crypto rewards are earned from staking tax. Currently, Proof-of-Stake wagering rewards are classified as income, with tax payable as they are earned. The new development suggests that they should only be taxed when sold for USD. The Jarretts filed a complaint against the United States government in May 2021, saying that the 8,876 Tezos (XTZ) tokens they created in 2019 were not income and should not have been taxed as such. The complaint also alleged that the government was trying to do something “unprecedented, namely creative tax activity rather than income”. economics, and is not supported by the Internal Revenue Code, regulation, case law, or the Constitution.” as provided by law” the $3,793 the Jarretts paid last year for their unclaimed rewards. Until now, there are no guidelines for taxing unclaimed wagering rewards. The IRS asks taxpayers whether they “received, sold, bartered, or otherwise disposed of a financial interest in a virtual currency,” but none of those descriptions seem to relate directly to the unsold and unsold unclaimed rewards from the Jarretts. Related: Crypto tax calculator CoinTracker valued at $1.3 billion after $100 million raise Forbes reported that sources close to the case say the pair plans to take the case further to court to gain longer-term protection and set a national precedent. US taxpayers are likely praying that no legislative response to this court outcome resembles the UK regulator’s new guidelines on crypto strike. There, the use of crypto is often considered to be the sale of tokens and capital gains tax will be levied.
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