The United States Internal Revenue Service (IRS) is under renewed legal pressure over the taxation of cryptocurrency staking rewards. On October 10, 2024, with support from Coin Center, Josh Jarrett filed a new lawsuit challenging the IRS’s approach of taxing block rewards as income as soon as they are earned.
Crypto Tax Case
The lawsuit alleges that the IRS treats block awards as income upon receipt, not as newly created property. Jarrett and Coin Center argue that this approach is unfair. They state that block rewards should be taxed upon sale or exchange for cash.
This latest case is Jarrett’s second lawsuit against the IRS over the taxation of staking rewards. A similar lawsuit was filed in 2021, in which the IRS issued a refund for the previous year’s tax payment but did not provide any instructions for subsequent years. In 2023, the IRS issued new guidelines stating that staking rewards will be considered income as soon as they are received.
Bill and IRS Policy Changes
In the first half of 2024, a bill was introduced to Parliament stipulating that Staking rewards will be taxed only when sold. The lawsuit was filed to force the IRS to make its policy more reasonable before due process. Starting in 2025, the IRS will impose customer transaction reporting obligations on crypto brokers and other wallet providers.
These new regulations will expand the taxation of digital asset transactions to include high-value NFTs and certain stablecoin transactions. The current tax policy affects many cryptocurrency users using the Proof-of-Stake system, and it is stated that the obligation to tax the value of each reward places an additional burden on taxpayers.
If the case is resolved, the IRS’s policy of treating staking rewards as income may change. This will be an important development for the cryptocurrency community and Proof-of-Stake-based networks. The judicial process will play a critical role in determining the legal framework for taxing crypto assets.
Staking is a method used by validators of cryptocurrency networks to add blocks. In this process, validators are rewarded with newly created tokens. Jarrett, Tezos 
$0.66071 He argues that he obtained a significant amount of tokens by staking through his network and that these tokens should not be considered as income until they are sold.
The lawsuit argues that the IRS’s current policy imposes unnecessary regulatory burdens on taxpayers and hinders the development of crypto networks. The crypto community has expressed concerns that such regulations could negatively impact innovation and the distributed nature of networks.
New regulations and the outcome of the case could have significant impacts on the future taxation of crypto assets. Crypto users and investors are closely following how policies will be shaped in this process.
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that crypto currencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
