- ConsenSys will support the lawsuit currently underway against the IRS for taxing staked cryptocurrencies.
- The International Revenue Service (IRS) recently updated its cryptocurrency tax and reporting requirements stating that income generated from digital assets held for more than one year will be taxed between 0 % and 20%.
- ConsenSys has decided to support the lawsuit against the IRS because as the Shanghai update approaches, users on Ethereum will start claiming their staking rewards and require tax clarity.
ConsenSys, the blockchain company created by Joe Lubin, co-founder of Ethereum, told Decrypt that will support the lawsuit currently running against the IRS for taxing staked cryptocurrencies.
Cryptocurrencies are a nascent sector, but due to its rapid growth, it has demanded the attention of regulators and tax authorities. However, given the young age of the sector, there is still very little clarity in regulatory and fiscal terms regarding this new asset class.
according to a article from Forbes, The International Revenue Service (IRS) recently updated its cryptocurrency tax and reporting requirements. The objective was to broaden the scope of the entity to all those who “have dealt” with digital assets.
In said requirements, it is established that the crypto assets that are maintained or transferred between own wallets are not taxable. Neverthelessthe income generated from digital assets that are maintained for more than a year are taxed between 0% and 20%.
So, does a person have to pay taxes on the rewards they receive from cryptocurrency staking? Precisely here lies the confusion that revolves around the IRS and that ConsenSys seeks to have clarified.
Tax filing and cryptocurrency staking
Before understanding ConsenSys’ decision, it is necessary to know about the case of Joshua and Jessica Jarrett against the IRS. This happened in 2021 when the couple sued the tax agency to recover the taxes on the Tezos that had been generated by the staking.
It is necessary to remember that staking refers to the process of blocking cryptocurrencies in the network so that it is kept safe and transactions are validated in exchange for rewards.
According to Joshua and Jessica, under federal law, staking rewards should not be taxable and itself, US tax policy is really ambiguous on this since it does not mention staking, although it does mention mining rewards and sets them as taxable income.
At first glance, I got what seemed like great news. The IRS offered me a tax refund, indicating the government didn’t want to defend the position that the tokens I created through staking were taxable income. pic.twitter.com/jsxMrZ5XKz
—Josh Jarrett (@nohardforks) February 3, 2022
Thus, on February 3, 2022, the IRS offered the couple their requested refund, and for Josh Jarrett, this is an indication that “the government did not want to defend the position that the tokens I created through staking were taxable income”.
However, the couple decided to deny the offer and demanded guarantees from a court that this type of problem would not happen again, but it did not. The case was dismissed in October and now the Jarretts are in the appeal process.
Per se, Joshua Jarrett argues that all digital asset rewards earned through staking should be considered “newly created property”, and accordingly, they should not be taxable until those rewards are sold.
ConsenSys seeks clarity on tax filing
The lack of clear regulation is just as problematic as excessive regulation that stifles innovation. In accordance with Decrypyou, ConsenSys has decided to support the lawsuit against the IRS because as the Shanghai update approaches, users on Ethereum will start claiming their staking rewards and require tax clarity.
Also, according to Decrypt, Bill Hughes, ConsenSYs Senior Advisor, assured that many more people are expected to start staking on Ethereum and, therefore, proper tax treatment is required. Therefore, the company will offer financial support to the Jarretts’ effort to appeal the case.
“We support Josh and Jessica Jarrett’s appeal because we believe that American taxpayers, who run many of Ethereum’s validators, deserve fair treatment under the tax code. […] We are pleased that the Jarretts will not allow the IRS to circumvent this issue by asking an appeals court to reinstate their case.”Hughes noted.
The Jarretts deserve their day in court and to have their arguments heard on the merits. If the IRS is right on the law, then a district court would find for it.
This case matters to every US taxpayer who wants to participate in crypto through staking.
H/T @abesutherland https://t.co/PFwkbguLr6
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) February 7, 2023
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