IRS Crypto Tax Lawsuit Sets a Precedent for Incoming Crypto Policy

The Internal Revenue Service (IRS) has been the heel to the crypto world for some time now. The asset class has flown under the radar for years, and without clear precedent from other areas of government, many crypto bulls don’t see crypto taxes as a fair development. But this week, previous conceptions of crypto taxing are being turned on their heads. An IRS crypto tax lawsuit is giving a break to DeFi bulls and setting a precedent for incoming policy from the executive and legislative branches.

An image of several crypto coins in a circle around a geodesic sphere.
Source: lucadp /

The IRS has had guidance around crypto since 2014. 2019, however, saw the network ramp up its efforts around the asset class; this newer guidance includes crypto tax reporting steps. However, since then, there are more questions than answers around taxing digital currency gains.

These questions are very important ones for the next year. The U.S. government is seriously ramping up its efforts to regulate the asset class, and taxation will be a huge concern for Americans, especially as the overall investor base of crypto grows larger and larger. President Joe Biden is preparing an executive order that could see signing as early as this month; this order is set to contain guidance for policy around crypto and non-fungible tokens (NFTs). Meanwhile, Congress is preparing more meetings around crypto mining for its own policy.

IRS Crypto Tax News Sets Courtroom Precedent for Crypto Staking Gains

This week, there is breaking news that could drastically influence this incoming policy. While the executive and legislative branches slowly begin upping efforts to regulate crypto, the judicial branch is setting its own precedent on crypto taxation. The precedent comes from a bombshell ruling in an IRS crypto tax lawsuit.

Back in May of 2021, Joshua and Jessica Jarrett took the IRS to court after the body taxed the couple’s crypto assets gained through staking. Specifically, the couple were taxed on their 8,876 Tezos (CCC:XTZ-USD) coins they earned in 2019. The pair applied for a refund on these taxes, to which the IRS did not respond.

The Jarretts contend in the lawsuit that the crypto they earned through staking is not taxable. They argue that the assets are like those of unsold crops or a painting still on the easel; these assets are not actually taxable income until they are sold by their owners.

And in an absolutely massive win for crypto investors, the Jarretts have won the lawsuit. The IRS is offering the couple a refund on their taxes today, as they look to settle the case. However, the pair are looking to continue pushing the case further; it appears they would like to see their example made into a precedent for tax policies in the future.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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