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A Couple from Nashville Sues the IRS

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May 28, 2021

Hailing from Nashville, Jessica and Joshua Jarrett are filing a lawsuit against the Internal Revenue Service (IRS) after they were taxed for the rewards they had earned by staking crypto on the Tezos blockchain. As per the lawsuit, the couple is seeking an income tax refund for the 8,876 tokens they had mined and the amount they are seeking is $3,293. Joshua and Jessica are also hoping to get a $500 increase in their tax credits because of the income they lost. The couple filed the legal complaint and a representative from a group called Proof of Stake Alliance (POSA) shared it. 

The purpose of the group is to evaluate the legal and regulatory framework that surrounds PoS technology. This filling will actually be the largest lawsuit to have been filed against the agency. It comprises of extensive details on how tax will be applicable on those who are making a contribution to the Proof of Stake blockchain for the tokens they have received. It is expected that there will be an increase in the number of people using PoS protocols after a PoS framework is adopted by the Ethereum blockchain. This is expected to happen by the end of 2021. 

The couple claimed in the lawsuit that the taxes are not applicable until they decide to exchange or sell the Tezos tokens. The document also claims that as per the federal income tax laws, crypto tokens cannot be taxed by agencies if they have been created through staking activities. The document also highlights how inappropriate it was to tax a property that hadn’t been sold as yet. It said that just like a writer writes a book and a baker bakes a cake, Mr. Jarrett had also created something. Taxes would only be applicable on these parties when they have sold their respective properties. 

In accordance with these arguments, the Jarretts will only have to pay tax if they decide to exchange or sell their tokens. A heated debate took place over the issue on Reddit, with some people debating whether gold is taxed when sold or when it is unearthed. Evan Weiss, the founder of POSA, said that the issue raised in this complaint had a great deal of economic importance. He said that if they formulated wrong policies, it would affect the innovation in this sector. 

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As far as the IRS is concerned, they have not responded to any of the allegations that were made against it. Considering the fact that they have not come up with a solid framework for this process, it can be difficult to predict how things will go. However, a motion has been tabled by some lawmakers that request the agency to give exemptions to stakers. They should only be taxed when they have sold their rewards, which means the Jarretts shouldn’t have had to pay any tax until they decide to sell off or exchange the staked tokens. The outcome of the lawsuit would definitely be important because it will affect the entire crypto space. 

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