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Crypto staking rewards and their unfair taxation in the US
Published Jul 11, 2021 11:21AM ET
Updated Jul 11, 2021 06:40PM ET
Crypto staking rewards and their unfair taxation in the US
The United States Internal Revenue Service (IRS) stretches the tax rules to fit its cryptocurrency agenda. At no time in tax history has pure creation been a taxable event. Yet, the IRS seeks to tax new tokens as income at the time they are created. This is an infringement on traditional tax principles and problematic for several reasons.
In 2014, the IRS stated in an FAQ within IRS Notice 2014-21 that mining activities would result in taxable gross income. It is important to note that IRS notices are mere guidances and are not the law. The IRS concluded that mining is a trade or business and the fair market value of the mined coins are immediately taxed as ordinary income and subject to self-employment tax (an additional 15.3%). However, this guidance is limited to proof-of-work (PoW) miners and was only issued in 2014 — long before staking became mainstream. Its applicability to staking is especially misguided and inapplicable.
Jason Morton practices law in North Carolina and Virginia and is a partner at Webb & Morton PLLC. He is also a judge advocate in the Army National Guard. Jason focuses on tax defense and tax litigation (foreign and domestic), estate planning, business law, asset protection and the taxation of cryptocurrency. He studied blockchain at the University of California, Berkeley and studied law at the University of Dayton and George Washington University.
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