ConsenSys To Support Lawsuit Challenging IRS Over Tax on Staking Rewards

• The Jarretts, a Tennessee couple, filed a claim against the IRS in 2021.
• The IRS offered to pay the Jarretts their refund halfway through the case.

On Tuesday, leading blockchain firm ConsenSys made public its intention to contribute to a case that challenges the Internal Revenue Service’s (IRS) authority to tax staking rewards.

The Jarretts, a Tennessee couple, filed a claim against the IRS in 2021 to recoup the federal income taxes that had been withheld from the Tezos that had been earned via staking. They argued that the government could not legally classify their earnings through staking as income.

The Internal Revenue Service (IRS) offered to pay the Jarretts their refund halfway through the case, but the plaintiffs declined, seeking a court order preventing a repeat of the situation. This did not happen, and in October a federal court dismissed the lawsuit because he found the Jarretts’ complaints irrelevant since they had received a tax refund.

Upcoming 16 Million Staked Ethereum

The millions of crypto users who produce cryptocurrencies on a regular basis via proof-of-stake blockchains had thought the ruling would provide them with legal certainty. Users are incentivized to stake crypto with the network to verify on-chain transactions in such systems, with Ethereum being the most well-known example. People who are willing to put their money down for long periods of time are rewarded with freshly minted cryptocurrencies.

The ConsenSys statement continued by saying that the tax treatment of staked cryptocurrencies is an urgent problem since the March Ethereum Shanghai upgrade would let validators withdraw 16 million staked Ether.

ConsenSys will now give financial assistance to the Jarretts while they appeal the rejection of their lawsuit. The appellants’ main contention is that since no employer is providing stake incentives, they should not be treated as taxable income.