Cryptocurrency Case Filed Against the IRS Raises Important Questions about the Taxation of Newly Created Property

WASHINGTON, May 26, 2021 /PRNewswire/ -- Today, Joshua Jarrett, American taxpayer, and participant in the Tezos blockchain protocol, represented by Fenwick & West LLP, filed a lawsuit against the Internal Revenue Service (IRS) seeking a refund of taxes paid on tez, arguing that taxation of newly created tokens as income is in direct contradiction of over 100 years of U.S. tax law. 

Newly created property, whether it be a piece of art or a baked good, is not considered income under U.S. tax law until it is sold.  Innovators and entrepreneurs who participate in blockchain staking are no different from artists and bakers, and if subject to different tax treatment may be forced to seek out other countries with a more fair tax code to operate in. Proof-of-stake blockchain technology is significantly less energy intensive than proof of work systems and has become widely adopted globally as the blockchain consensus technology of choice. 

Joshua Jarrett, the plaintiff in the case being filed in U.S. district court, said, "Like any property, cryptocurrency tokens can be income when they're received as payment or compensation. But these newly created tokens are like crops harvested by a farmer -- which are not taxed until they are sold."

Proof of stake has become the dominant form of consensus mechanism replacing proof of work for most second and third generation blockchain protocols. Currently proof-of-stake protocols are valued at over $415 billion. Additionally, Ethereum, the second largest and most utilized protocol in the world is in the middle of transitioning to proof of stake. 

"This is an issue of practical and economic importance," added Evan Weiss, founder of the Proof of Stake Alliance, a group dedicated to facilitating conversations and raising awareness of proof of stake technology. "The wrong policy would drive innovation elsewhere and our goal is for the United States to be a leader in this new and very promising technology. Fortunately, the correct policy is set under existing law: these new tokens – like all forms of new property – are not income until they are sold."

The full filing can be read on the POSA website at proofofstakealliance.org.

About POSA
The Proof of Stake Alliance (POSA) serves as a unified voice to support, grow and protect proof of stake-based technologies and innovations that will power the next generation of the internet. Visit proofofstakealliance.org for more information or to inquire about membership.

Media contact: Jackie Zupsic, [email protected] 

SOURCE The Jarretts

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