The Internal Revenue Service (IRS) stated that cryptocurrency staking rewards are taxable as soon as they are received. This statement comes amid an ongoing lawsuit filed by crypto investor Joshua Jarrett.
IRS Approach to Taxation
The IRS maintains that rewards obtained through staking activities should be declared as gross income in the year they are earned. Based on the Revenue Regulations 2023-14, the agency states that the value derived from staking is taxable income. Taxpayers must declare staking rewards as taxable income as soon as they are received.
The IRS maintains that staking rewards are fully taxable because investors provide “steer and control.” This approach takes a clear stance on taxing staking activities.
Legal Battle and Jarrett’s Defense
Joshua Jarrett claims that staking rewards should not be considered taxable income. Jarrett argues that the awards are newly created property, so they should not be treated as income.
“Staking rewards should not be considered taxable income.” – Joshua Jarrett
However, the IRS rejects this view, stating that the rewards are fully taxable to the recipients. The outcome of the case could have significant implications for the taxation of staking rewards.
Global Crypto Tax Policies
Crypto tax is being heavily debated around the world. Hong Kong aims to attract foreign capital by providing exemptions from crypto taxes for private equity and hedge funds. In the USA, the Trump administration is evaluating crypto tax exemptions.
The European Union has completed the latest MiCA regulation. This regulation provides a comprehensive framework for regulating crypto assets and includes stricter rules, including preventing market abuse. MiCA will come into force on December 30, 2024 and will lead to significant changes in the crypto industry.
As the cryptocurrency industry grows rapidly, regulatory authorities are scrutinizing activities more closely. In this process, the IRS’s definition of staking rewards as taxable increases uncertainties in the sector.
As a result, the IRS’s designation of staking rewards as taxable and the lawsuits filed on this issue could play an important role in shaping future regulations of the crypto industry.
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.
