The Nashville couple’s lawsuit over the taxes they paid on the unclaimed and unsold rewards for Tezo’s efforts ends when the Internal Revenue Service (IRS) agrees to pay them.
This decision could set a precedent for future guidance on how to tax rewards of cryptocurrency earned through efforts. Currently, entry reward certificates are categorized as income, with taxes paid when received. The new development indicates that it should only be taxed when it is sold in US dollars.
The Jarrett family filed a complaint against the US government in May 2021, stating that the 8876 Tezos (XTZ) they created in 2019 are not income and should not be taxed as such. The applicant also claimed that the government was trying to do something “unique, i.e. to tax creative activity and not income”.
“Taxing newly created cakes, books, or tokens as income will have far-reaching and detrimental effects on US taxpayers and the economy and is not supported by the Internal Revenue Code, ordinances, case law, or the Constitution.”
According to court documents expected to be released Thursday, the IRS said it will review Jarrett’s application for a “legal interest in accordance with the law” of the $3,793 that Jarrett paid for his uncollected wages last year.
There are currently no guidelines on how to tax rewards for unclaimed efforts. The IRS asks taxpayers “whether they have received, sold, traded, or disposed of any financial interest in virtual currency,” but none of these descriptions relate directly to Jarrett’s unsold and unreceived rewards.
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Forbes reported that sources close to the case say the couple plan to pursue the case in court to gain long-term protection and set a national precedent. US taxpayers will likely demand that the legislative response to this legal outcome is not the same as the UK regulator’s new guidance on cryptocurrency. There, cryptocurrencies are often treated as a token sale and will result in capital gains tax.