IRS May Not Tax Passive Income From Holding Crypto Right Away

rear view of businessman sitting on green grass landscape with laptop watching view with flying large group of money over sunny blue sky What Happened

Taxation of staking rewards has been a controversial topic for many years because the IRS has failed to issue any clear guidance on this matter. In the absence of this guidance, many taxpayers defaulted to following a conservative approach for taxation — reporting income at the time you receive staking rewards.

For breaking news, market insight, and in-depth analysis, subscribe to our premium research service, Forbes CryptoAsset and Blockchain Advisor . Joshua Jarrett, Jessica Jarrett (plaintiffs) v. US (defendant) case

During 2019, a Nashville couple (Jarrets) received 8,876 Tezos (XTZ) staking rewards. These coins were worth $9,407 at the time of receipt. By relying on the conservative approach above, the Jarrets reported $9,407 as income and paid related taxes.

On July 31, 2020, the couple filed an amended tax return arguing that $9,407 staking income shouldn’t have been income in the first place. The amended return demanded a $3,793 tax refund from the IRS. The couple didn’t receive a timely response from the IRS.

In a complaint dated May 21, 2021 , the couple argued that newly created property is taxed only at the time of sale, not at the time of receipt. For example, if you create a book, you pay taxes only when you sell it, not at the time you are done authoring the book. In response to this complaint, the Tax division of the US department of Justice ordered the IRS to issue a refund of $3,793 on a letter dated December 20, 2021 . Interestingly, the Jarretts refused to accept the refund because the IRS didn’t acknowledge the true reasoning for issuing the refund. This reasoning is essential to […]

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