- Court Decision Sets Precedent for Future Policy on Taxing Cryptocurrency Profits
- An American couple received 8,876 Tezos tokens in return for a pledge.
- These coins should not be taxed as income
A Nashville couple sued the Internal Revenue Service (IRS) for taxes on their pledged returns of Tezos. Since they neither claimed nor sold the Tezos tokens, the IRS agreed to refund them.
A Legal Precedent
The court's decision is widely seen as setting a precedent for future cryptocurrency tax policy. Most importantly, however, is the benefit of pledges. Currently, these rewards are classified as taxable income. Now it turns out that income tax only arises when coins are sold in legal tender.
The Jarretts filed their complaint in May of last year. In it, they explained that the agency incorrectly treated the 8,876 Tezos tokens in question as revenue. The complaint states.
Taxing newly created pies, books or tokens as income would have a profoundly destructive effect on taxpayers and the U.S. economy. It finds no support in the Internal Revenue Code, statutes, case law or the Constitution.
The IRS said it would refund the tax paid at "interest as provided by law. The total amount of the tax is approximately $3,800.
No guidance on taxation of unclaimed pledge awards
Currently, the IRS asks taxpayers on its forms whether they "received, sold, traded, or otherwise disposed of an economic interest in virtual currency. However, none of these terms appear to be relevant to the couple's case.
Ryan Losi, vice president of the tax firm PIASCIK, likened the issue to a catch-22. In an interview with Yahoo, he said.
The IRS simply collects data, changes the forms to make it clear whether you did so, and sets the trap for dropping the hammer in future years.
According to Shehan Chandrasekera, head of tax strategy at Coin Tracker, in some cases cryptocurrency users don't know how to answer this question honestly. In his opinion, the instructions are not detailed enough.
For example, if someone you love owns cryptocurrency, or if you yourself have invested in a company that trades cryptocurrency, we don’t know if either of these situations would fall under the category of “financial interest”.
According to Forbes, which cited insiders, the couple hopes to obtain long-term protection through litigation. In many other countries, regulators consider the use of cryptocurrencies to be equivalent to the sale of tokens, and users must pay taxes on their profits. Cryptocurrency investors in the U.S. hope to never have to face that situation.