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According to one couple in the United States, coins obtained through staking have been “created” and are tax-free until sold.
In a suit filed in federal court, a couple investing in cryptocurrency argued that coins obtained via mining or staking are tax-free until sold.
The Tennessee couple is suing the Internal Revenue Service for a refund and filed a suit in the United States District Court for the Middle District of Tennessee on Tuesday.
Earnings from staking, according to Joshua and Jessica Jarrett, are not taxable transactions since they entail the production of property. They compared it to a baker baking a cake or a novelist writing a book.
Law360 reported that the court heard Joshua Jarrett used his resources to create 8,876 new units of Tezos (XTZ) tokens in 2019, and he has yet to sell any of them. The case is based on the premise that the crypto assets were “created” and have not been sold, so no income or profit has been realized from them.
In their complaint, the Jarretts stated that the U.S. seeks to use federal income tax law to do something unprecedented, which is to tax creative activity rather than income, adding:
“Taxing newly created cakes, books or tokens as income would have far-reaching and detrimental effects on taxpayers and the U.S. economy, and is without support in the Internal Revenue Code, regulations, case law or the Constitution.”
The couple cited a 1920 Supreme Court decision that stated that income must include a “coming in.” According to them, property created by a taxpayer does not “come in,” but rather “goes out.” Another case from 1955, in which the court defined income as “instances of undeniable accessions to wealth, clearly realised, and over which the taxpayers have complete dominion,” was cited to support the allegation.
The tokens were declared as “other income” on the couple’s tax filings, resulting in a $9,407 payment to the IRS. A refund of $3,293 in federal income tax paid, as well as a $500 increase in tax credits due to a decrease in their income, has been sought.
David L. Forst, the couple’s lawyer, argued that there is “100 years of tax law” as a legal precedent that freshly generated property is not taxed.
Cointelegraph revealed in early March that the IRS confirmed that crypto investors who only acquired digital assets using cash and did not sell them throughout 2020 do not need to record their activity.
On May 20, it was reported that the US Department of Treasury requested that exchanges and custodians disclose cryptocurrency transactions worth more than $10,000 to the IRS.