In May 2021, a Nashville couple known as the Jarrets Internal Revenue Service (IRS) sued for taxes they paid on unclaimed and unsold Tezos (XTZ) bonuses. In early February, the news came that the lawsuit filed by the Jarrett family had been closed, which resulted in the tax authorities issuing a tax refund of $ 3,793 to the couple.
Confusion among owners of cryptocurrencies
Shortly after the news hit the headlines, the confusion spread among the cryptocurrency community. On February 2, 2022, the crypto media released a tweet from their official account saying “BREAK: The IRS will not collect unsold crypto as revenue.” The tweet generated over 4,000 retweets and over 18,000 likes when Crypto Twitter was ecstatic about the alleged idea that the tax authorities would not tax unsold cryptocurrencies.
More confusion arose when the mainstream media began publishing articles stating that the tax authorities would not tax passive income from cryptocurrencies. For example, a recent Forbes article by a great author said:
“This is a great benefit for U.S. cryptocurrency holders in light of this new information, as even without this formal court decision, some taxpayers may take a somewhat aggressive approach and not report income at the time of receipt.”
Air purification: No judge
Seth Wilks, head of government and SME relations at TaxBit, a cryptocurrency tax platform, told the Cointelegraph that much misinformation has circulated and erroneous conclusions have been drawn regarding the lawsuit:
“In the eyes of the tax authorities, nothing has changed. Their position on income stabilization is the same as in recent years. This case had more to do with the lawsuit than anything else. There was no court decision that another taxpayer could refer to as a precedent. the case was the only point of contention here. ”
Wilkes said the court’s decision still needs to be made as the IRS only settled the dispute by paying the couple a refund. He added that unless the plaintiffs come up with an unexpected legal argument to continue with the case, the likely outcome will be a full dismissal from the judge. “From a legal point of view, I can assume that the Department of Justice – the IRS’s law firm in these cases – will file a motion with the court to dismiss the case, citing apathy, which means it is no longer valid as a refund has been issued. . ”
On the other hand, Wilks noted that Jarretts may continue to push the case forward, noting that the couple works with a team of experienced lawyers and also receives support from the Proof of Stake Alliance (POSA), an industry spokesman. Collection. With that in mind, Jarrett’s recently issued a statement noting that their goal is for the IRS to clarify its position on application taxation and block bonuses “for both Proof of Stake and Proof of Work systems.”
This is important because there are currently no clear tax guidelines for uncollected effort rewards. At present, the tax authorities only ask taxpayers “whether they have received, sold, traded or disposed of economic interests in a virtual currency.”
Alison Smith Manjero, POSA board member, president and founder of the Tocqueville Group, an asset management firm, told the Cointelegraph that the Jarrett case may represent the first legal statement written on the subject of taxing rewards in cryptocurrency. .
“This is very important since POSA has been working on this case since we started almost three years ago,” she commented. Many taxpayers are in the same position as Jarrett, Manjiru said. It therefore considered that it was essential to present legal arguments in the case. “This argument is supported by more than 100 years of tax law, and it is important for people to understand that this is a viable position,” she said.
Mangero added that POSA worked with law professor Abraham Sutherland in 2019 to initially discuss block bonus taxes. As a result, Sutherland published a detailed report in SSRN, formerly known as the Social Science Research Network. The brief report notes that Sutherland “concluded that for Proof of Work and Proof of Stake cryptocurrencies, the best approach is to tax reward tokens only when they are sold or exchanged.”
With that in mind, Manjiru noted that the IRS does not determine taxable income, but that the job is instead to enforce the tax code. She also noted that Sutherland is POSA’s legal adviser and also acts as a lawyer in the Garrett case.