Legal confusion has broken out in the United States after media outlets reported on a legal case whereby the Internal Revenue Service (IRS), the United States tax body, is allegedly set to refund a couple’s tezos (XTZ) crypto staking tax bill. But one prominent lawyer says the reporting around the case – which some claim could be a new landmark – amounts to “clickbait”, while others warn that this may be a settlement to avoid setting precedent.
The media outlet Blockworks claimed to have got the “scoop” on the case, which was also reported by Forbes. They claimed that “in court filings expected to be made public Thursday,” the IRS was set to “refund USD 3,293 in income tax plus statutory interest” to a couple based in Nashville. The duo, named Joshua and Jessica Jarrett, had been forced to pay the aforementioned amount on the XTZ 8,876 they had obtained via staking.
The couple had paid but objected to the bill – and in May last year took their case to the civil courts claiming that tokens acquired through proof-of-stake (PoS) methods were in fact “new” forms of “property” rather than conventional “income.” Unless they are converted into a “readily accessible form of wealth,” the couple had claimed “no taxable event has occurred” in the eyes of the IRS.
However, the confusion appears to have arisen in the IRS’ alleged response – which will not be made public until later today. Blockworks claimed that the IRS “has offered to refund” the Jarretts, in what appears to be a legal settlement, rather than an official ruling.
The same media outlet added that the “decision” was “set to clarify the tax treatment of staked cryptocurrency.”
It claimed that the decision was a “win for cryptocurrency stakers and miners.”
Also quoting “sources close to the matter,” Forbes wrote that the Jarretts “plan[…] to pursue the case further in court to obtain longer-term protection,” which “would undoubtedly set a national precedent for the growing [s]taking industry.”
The media outlet added that it was “unclear at the moment if the IRS plans to update its official guidance” on staking “for last year.”
However, some lawyers have suggested that media outlets may have been overly keen to read more into the move than the IRS intended. They pointed out that such a “refund” “offer” is effectively a settlement offer, rather than a ruling. As such, it may not have legal precedent status.
Indeed, the crypto tax specialist TokenTax claimed the IRS may have actually decided to settle in a bid to avoid setting a precedent.
Jake Chervinsky, the Executive Vice President and Head of Policy at the Blockchain Association, called a Blockworks tweet claiming that the IRS would “not tax unsold staked crypto as income” an example of “misleading clickbait.”
“I’m really disappointed that Blockworks rushed to print a ‘scoop’ before the facts were out. The article says court filings are due [on Thursday]. They could have waited a day and gotten it right. Instead, the story will be about the media rather than the reality of this major case.”
When one respondent claimed that coin stakers could “quote this case” in their legal defense if presented with a tax bill “since the IRS […] doesn’t provide guidelines for these situations,” Chervinsky replied that “settlements are not binding precedent” in the United States.
UK taxman’s updates
Meanwhile, in the UK, the country’s tax agency Her Majesty’s Revenue and Customs (HMRC) has updated its guidance on the taxation of returns from decentralized finance (DeFi) lending and staking in PoS networks.
The return is taxed depending on whether it is considered capital or revenue, which further depends on how the transaction is structured, said the regulator. The “answer may not always be clear”, it admitted, due to the nature of the space and “the various operating models.”
The tax regulator said that,
“The lending/staking of tokens through [DeFi] is a constantly evolving area, so it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return. Instead, some guiding principles are set out.”
Digital assets trade association CryptoUK said in a statement that this update “will significantly alter the way that these assets are classified and treated.” They described the updates as inconsistent, as it differs from the Government’s and other regulatory bodies’ approach, which will result in “friction for crypto investors, […] undue reporting requirements for the consumer, and […] tax compliance confusion.”
Ian Taylor, Executive Director of CryptoUK, said that,
“This treatment of crypto lending and staking creates an unnecessary burden for any crypto investor who will now be required to include details of any lent assets […] on their tax returns and will have to carry out additional reporting which could require individuals to report hundreds or even thousands of transactions. This is out of step with the Government’s stated aim for the UK to be open and attractive as a destination for investment and innovation post Brexit.”