In 2021, a Nashville couple sued the IRS over taxes they had to pay for an unsold and unclaimed Tezos staking reward. The IRS agreed to issue a refund as well.
This decision might set a precedent and be used as guidance on how crypto rewards through staking will be taxed. Currently, POS rewards are considered income and will be taxed as soon as they are gained. This new development indicates that they can be taxed only if they are sold and USD transferred to their account.
The Jarretts filed a complaint against the US government, stating that the 8876 tokens they owned in Tezos were created in 2019 and, were in no way an income. This should not have been taxed and their claim that the government was doing something unprecedented by taxing creative activity, not income. The IRS said that it would offer the Jarretts a refund with interest on the amount charged. The couple received $3973 they were forced to pay for unclaimed rewards in the previous financial year.
There is no guidance available on how unclaimed staking rewards should be taxed. The IRS wants taxpayers to clarify if they sold, received, or even exchanged financial interest in virtual currencies of any kind. None of these descriptions fit or even apply to the Jarretts’ holdings and their unclaimed rewards.
According to Forbes magazine, sources close to the Jarretts say that the couple plans to go further within the court system to get more long-term protection for crypto activity. Many taxpayers are waiting to see if the outcome in the US will resemble what the UK guidance looks like.
