An American couple suing the Federal Tax Office to tax the rewards for Tezo efforts (XTZ), decide to forgo a tactical victory and engage in a legal battle that may eventually lead to a change of policy.
Joshua and Jessica Jarrett, who run a node on the Tezos network (thereby “baking” new blocks in the language of the ecosystem), are suing the Internal Revenue Service (IRS) for taxes paid on XTZ tokens created in 2019. He has filed a claim for a refund of more than $3,000 paid for the tokens, which the IRS ignored.
The main point of contention at the heart of the lawsuit is the classification of effort rewards as either taxable income or property that was created untaxed before it was sold. Tezos bakers claim that earning coins by betting is like baking a cake or writing a book, and therefore these coins should not be treated as taxable income.
Related Topics: Crypto Staking Rewards and Unfair Taxes in the US
On Thursday, Joshua Jarrett released a statement saying that the US government had offered to refund the taxes in question as part of a settlement. “At first glance, this seemed like good news,” Jarrett said, but later realized that without a court order, nothing would stop the IRS from taxing the rewards for his efforts again. Garrett said:
A year and a half into this process, the government was reluctant to defend the position that the tokens it created through bets were taxable income. […] I need a better answer. So I refused the authorities’ offer of compensation.
Jarrett’s statement also notes that his ultimate goal is to have the IRS clarify its position on taxing efforts and blocking rewards “for both Proof of Effort and Proof of Work systems.” He claimed that even in the absence of guidance in the case, the IRS license in his case could be interpreted as supporting the idea that rewards for effort are not taxable income.
Reed Yeager, formerly of the Industrial Law Group’s (POSA) Proof of Stake Alliance stated:
The IRS and Department of Justice’s decision to award damages without implementing actions to correct poor guidance threatens American operations and innovation.
The subsequent court decision on whether or not effort rewards are taxable will likely be a defining moment for the POS industry.
