Crypto Investor Sues IRS Over Tax Enforcement Laws

Crypto Investor Sues IRS Over Tax Enforcement Laws

Cryptocurrency investor, Joshua Jarret has officially filed a lawsuit against the Internal Revenue Service, under the grounds that taxing newly created cryptocurrency tokens as income is unlawful. Jarret claims that the IRS taxing tokens which have been freshly minted and still yet to be sold “is in direct contradiction of over 100 years of U.S. tax law.” As Jarret stated in a press release in May of this year, "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."

Jarret and his team of lawyers argue that newly minted coins are legally the same as a recently completed painting, or any other piece of artwork. Jarret also raises the point that the individuals who harvest tokens could move their operations to other countries outside of the United States, where different tax laws apply. In Jarret’s logic, the IRS would generate more tax dollars by not unfairly taxing U.S. citizens, as token harvesters would have greater incentive to keep their operations within the U.S.

Jarret participates in the “Baking” of Tezos (Tezos lingo for Staking), and therefore unlocks newly minted XTZ tokens for his participation. Tezos is a PoS cryptocurrency that utilizes the staking of tokens to secure the network, in a similar fashion to cryptocurrency mining. Jarret’s Tezos “Baking” grated him 8,876 new XTZ tokens. When the Jarret family filed their 2019 taxes, they reported $9,407 from the newly minted XTZ tokens as “Other Income” on their schedule C form. They paid $3,293 in taxes on the tokens. The Jarret Family filed a refund claim for the taxes, along with subsequent tax credits. According to Jarret, the IRS has still not responded to their claim.

“The United States here seeks to use the federal income tax law to do something unprecedented, which is tax creative activity rather than income,” Jarret alleges. “Taxing newly created cakes, books, or tokens as income would have far-reaching and detrimental effects on taxpayers and the U.S. economy.”

As cryptocurrency evolves, so must the policies on its taxation, in the same way taxation had to evolve regarding other markets as they grew from their infancy. It is uncertain if Jarret will win or loose the case, however there are plenty of attorneys who believe that he has a fighting chance at reclaiming the tax dollars he believes the government took unlawfully. It will be a progressive step for the relation between the U.S. government and cryptocurrency if Jerret wins the case.

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