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No, IRS may not write off taxes on crypto staking rewards so easily, claim experts

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Crypto news was abuzz recently with speculation of the U.S Internal Revenue Service (IRS) writing off the tax on income generated from unsold staked cryptocurrencies. Many, including crypto influencers on social media revered the implication derived from a district court ruling in Nashville.

However, experts are now claiming that the industry might have been too quick to rejoice, and the precedents set from this single case could not be as far-reaching as was earlier thought.

Too soon to rejoice?

It all began when news broke of Joshua and Jessica Jarrett being reimbursed $3,293 in income tax (plus statutory interest) by the IRS for 8,876 Tezos tokens they had obtained through staking. The couple had filed a civil lawsuit in May last year claiming that until the staked tokens are sold, it cannot be considered a taxable event since tokens gained through staking should be considered as the acquisition of new property rather than income.

Many in the crypto sector began to believe that this could set a large precedent on how taxes on crypto gains are calculated, with unsold tokens gained through staking becoming nontaxable.

However, some experts have come forward to declare otherwise, while calling out publications for misleading investors into possibly defaulting on their tax obligations. Public accountant James Yochum took to Twitter to explain the same, highlighting that a ruling by a district court was not enough to necessarily set a country-wide precedent, adding,

“It may satisfy as precedent for their district… but IT DOES NOT satisfy for precedent or authoritative guidance for anyone’s tax return.”

He suggested that before the treasury comes out with official guidelines declaring the same, investors should continue to file their taxes in the assumption that staking rewards are taxed. This will allow them to opt for a refund in the case that the IRS does decide to remove this tax.

He stressed that people could face serious financial setbacks if they pay taxes with the assumption spread by the misleading news, as an exclusion from tax returns could lead to both penalties and interest.

All’s not lost

However, he did add that one can remain hopeful, considering that the documents suggest the IRS had sided with the taxpayers without the need for a court ruling. The court filings, which are due to be released tomorrow, might offer a greater insight into the outcome of the case.

Crypto lawyer Jake Chervinsky also reiterated these points on Twitter, adding that another devastating effect of this misleading news could be people feeling let down by any future ruling related to staking taxes that are not at par with complete removal.

Meanwhile, the United Kingdom has begun its own taxation crusade against staking and DeFi lending, with its tax agency’s latest guidelines adding “undue reporting requirements for the consumer, and creates tax compliance confusion,” according to experts.


Anjali is a full-time journalist at AMBCrypto. With a strong background in humanities, her personal inclination lies towards the political and socio-economic aspects of the crypto-sphere
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