Two Tezos (XTZ) investors are taking the IRS to court again over the agency’s handling of their staked XTZ tokens.
In a new complaint filed in a federal court in Tennessee, Josh and Jessica Jarrett claim that newly minted tokens by staking should only be treated as taxable if they are sold.
“New real estate is not taxable income; instead, the taxable income arises from the proceeds from the sale of that new property. In all other contexts, the IRS recognizes that new real estate is not taxable income. When a taxpayer creates new property—whether a farmer’s crop, an author’s manuscript, or a manufacturer’s product—he is not taxed until he sells it. Income only comes in when new real estate is sold. As the leading treatise explained in the year the income tax was introduced, ‘the measure of taxable net income is not the amount or value of the products of the annual activities, but the net proceeds of sales.’”
The Jarretts first sued the IRS on similar grounds in 2021, seeking refunds of taxes they paid on staked XTZ tokens. The case was dismissed after the Jarrets were offered a $4,000 settlement.
Now the Jarretts are once again seeking refunds for staked tokens and a permanent end to what they see as the IRS’s treatment of newly minted crypto property as taxable income.
The lawsuit is supported by prominent crypto advocacy group Coin Center.
Said Coin Center in a statement:
“Josh’s case has important implications for the future of cryptocurrency and decentralized technologies. It’s especially important for proof of stake, where tokens, not hashing power, determine one’s ability to validate transactions and help build the blockchain. Since any token holder can stake, it means that the tax issue affects everyone.”
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