Don't be fooled by the recent IRS case on crypto staking!
It wasn't as big of a deal as every crypto account is making of it!
Hey everyone! Good morning!
In the past week, there was news reported about a couple that challenged the IRS about the taxation of their staking rewards from Tezos. We’re going to cover what that means for you below. But first, check out our bulletin board!
Bulletin Board:
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What does this case mean for you?
Here’s a quick background on the case. In 2019, a couple paid income tax on Tezos tokens they earned through staking. They then filed a lawsuit against the IRS claiming that the tokens were not income but ‘created property.’ Now in December of 2021, the IRS finally agreed to settle the case and refund the taxes paid plus interest. The couple rejected this offer and plans to continue litigation with a hearing scheduled for March 2023.
Now, what’s the impact?
Pretty much nothing! The IRS hasn’t definitively stated its position on staking nor has the case been settled to create legal precedent, so the current rule for staking income applies - treat it as ordinary income. Most likely, the IRS offered to settle to avoid litigation and avoid a costly trial.
However, seeing that the couple intends to continue litigation, we may start to see some initial pressure on the IRS to provide clear guidance on DeFi taxation.
For additional reference on this topic, check out this thread from Matt Foreman!
As a disclaimer, please note that the IRS still hasn’t issued crystal clear guidance when it comes to crypto, specifically DeFi and NFTs. Guidance to some of the questions will come from case law and rules for similar assets/investments. Please speak with your tax professional before engaging in any transaction as this is not formal tax advice.
Special thanks to @fintaxdude and @EmDeeEm for helping put this together!