Crypto-staking Jarretts sued the IRS for tax refunds
Tezos Network shareholders Josh Jarrett and his wife Jessica Jarrett have filed another lawsuit against the United States Internal Revenue Service over the tax treatment of their tokens.
In a new complaint filed Oct. 10 in Tennessee federal court, the Jarretts argue that their tokens are created through shares and are taxable only when they are sold, not before.
Tokens, they argued, involve creating “new property” because no one has owned it before, making it the same as “a farmer's crop, an author's text, or a manufacturer's product,” with no revenue generated until sold.
Source: Coin Center
“New property is not taxable income; rather, taxable income comes from the proceeds from the sale of the new property. In all other cases, the IRS recognizes that new property is not taxable income,” Jarretts said.
Under the 2023 guidance, the IRS will list block rewards — like staking — as “income” the moment they come into existence, subject to a tax on the estimated market value of the tokens at the time they are created.
The Jarretts are seeking a ruling that previous federal income taxes were wrongly assessed, a refund of $12,179 in taxes paid on 13,000 Tezos tokens earned in the 2020 tax year, and a permanent injunction against the IRS's treatment of the tokens they generated as income.
Washington, D.C. think tank the Coin Center is assisting the couple in their litigation.
The Coin Center said in an Oct. 9 statement that it supports the claim because tax laws — and federal agencies' interpretations of those laws — have “significant power to discourage Americans from using cryptocurrencies and license-free technologies.”
“If laws don't change, some are inevitable, which is why we support legislative changes like the Virtual Currency Tax Fairness Act, which creates exemptions for small private crypto transactions,” he added.
Jarrett's legal battle with the IRS began in 2021 when they sued the agency for more than 8,876 Tezos tokens obtained as rewards in 2019.
Related: Consensys issues statement of support for continuing hedge tax case
They did not sell or exchange the tokens at the time, but they did pay an estimated tax bill of $9,407 to the IRS.
They later filed for a $3,293 refund and a $500 tax credit increase due to their reduced income.
In the year In 2022, the IRS successfully litigated the case in a Tennessee district court after the Jarretts filed a $4,000 income tax refund against their Tezos award.
They refused to pursue the matter in court and set a legal precedent for all chain of custody.
The IRS disputed the full $4,000 refund and acknowledged that the Jarretts were not liable for tax on the 2019 stock awards, making the case “moot.”
Prior to this latest lawsuit, the Jarretts had tried and failed to reverse the original lawsuit on appeal.
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