IRS Offers To Settle Cryptocurrency Case, But Taxpayer Wants Precedent That Mining/Staking Is Not A Realization Event

Press Release, Taxpayer Lawsuit Demands Confirmation of Tax Treatment of Staking Rewards:

Today, the Proof of Stake Alliance (POSA), a leading blockchain industry association, celebrated important news: as part of ongoing federal litigation (Jarrett v. United States, No. 3:21-cv-00419 (M.D. Tenn.)), the government has offered to refund plaintiff Joshua Jarrett for the taxes he paid when he created new property through staking, a sign that the IRS may no longer attempt to tax tokens created through staking moving forward. Despite this initial victory, Jarrett is refusing the refund and continuing with his case, as without such a ruling there will be nothing to prevent the IRS from challenging him again on this issue.

Jarrett paid income tax for 2019 on new tokens he created through staking. Contending that property that is created—like bread baked by a baker or a novel written by an author—is only taxed when it is sold, Jarrett filed for a refund in August 2020. The IRS ignored Jarrett's refund claim, forcing him to pursue the matter in federal court. Today, court filings reveal that the government has offered to grant this refund, an early sign suggesting that the IRS will not tax property created through staking until it is sold.

POSA, and the broad coalition it represents, applauds Jarrett's decision to continue his lawsuit. He has rejected the IRS's offer of a refund, opening up the possibility of a court ruling that will give him, and millions of other taxpayers in the same position, the ability to confidently plan for the future. The importance of this issue has been raised by many, including Coin Center, the Blockchain Association, and several Members of Congress. ...

Abraham Sutherland, one of Jarrett's lawyers, said, "While I appreciate the IRS's offer, Jarrett needs a definitive ruling that the property he created through staking is not income."

• Statement from Joshua Jarrett
• Forbes, IRS May Not Tax Passive Income From Holding Crypto Right Away

(Hat Tip: Andrew Blair-Stanek)