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Crypto investors Josh and Jessica Jarrett are suing the US Internal Revenue Service (IRS) over its taxation of their staking-created Tezos tokens. They argue that such tokens should be viewed as property, taxed only when sold rather than upon creation. They previously sued the IRS over the tax treatment of their 2019 Tezos staking rewards, with the IRS offering a refund but the couple choosing to pursue legal precedent instead. After failing to get their original lawsuit reinstated, they filed a new one requesting reimbursement for incorrectly assessed taxes on their 2020 staking rewards.

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The crypto-couple, Josh and Jessica Jarrett, are going against the U.S. Internal Revenue Service (IRS) once more regarding its taxing methods on their Tezos tokens. They made a complaint on October 10th in a Tennessee federal court, arguing that their staking-created tokens should be treated as property and only taxed when sold, not before.

They say staking tokens is like creating a “new property” as nobody else has owned them before. It’s like a farmer’s crop or an author’s manuscript, where you only get income when you actually sell it.

According to the Jarretts, the IRS should not treat new property as taxable income. Taxable income should only be seen as the proceeds from the sale of new property. They based this on the 2023 IRS guideline which cites block rewards as “income” as soon as they’re created, with a tax payable based on the token’s estimated market value at the creation moment.

The Jarrets want the previous federal income taxes they paid to be declared as incorrectly assessed. They’re also asking for a refund of $12,179 which they paid in taxes for 13,000 Tezos tokens they earned in the 2020 tax year. Lastly, they’re seeking that the IRS should no longer treat the tokens they create as income.

They’re getting help in their lawsuit from the Washington, D.C. think tank Coin Center. Coin Center supports their claim, saying that the power of tax laws and their federal agencies interpretations can discourage Americans’ use of cryptocurrency. They’ve also pushed for changes like the Virtual Currency Tax Fairness Act, which would provide a small exemption for small personal crypto transactions.

This isn’t the first legal battle the Jarrets have had with the IRS. It started in 2021, when they sued the agency over 8,876 Tezos tokens they got as staking rewards in 2019.

They didn’t sell or exchange these tokens but still paid the IRS $9,407, which was the supposed tax bill. They then filed for a $3,293 refund and a $500 tax credit increase due to a reduction in their income.

In 2022, the IRS threw out the case in a Tennessee District Court after offering the Jarretts a $4,000 tax refund for taxes they paid on their Tezos staking rewards. The Jarretts didn’t settle, opting to set a legal precedent for all proof-of-stake chains.

The IRS claimed it had already given a full $4,000 refund and conceded the Jarretts didn’t have to pay tax on the 2019 staking rewards, thus rendering the case “moot.”

This most recent lawsuit comes after the Jarretts unsuccessfully tried to get their original lawsuit reinstated on appeal.

Source: Cointelegraph