Should PoS staking rewards be taxed immediately? U.S. couple's dissatisfaction with filing IRS lawsuit becomes the focus of discussion

The U.S. Internal Revenue Service (IRS) recently reiterated its position in the staking tax litigation that staking rewards should be taxed when received, rejecting the argument that staking rewards are taxable only after they are sold, which may affect the way cryptocurrency rewards are taxed in the future.
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Contents of this article

Today (24th), in its response to the latest lawsuit, the United States Internal Revenue Service (IRS) reiterated its tax stance on cryptocurrency staking rewards, making it clear that staking rewards constitute taxable income once received, rather than when they are sold or exchanged.

This announcement may reshape the way the United States taxes crypto-pledged assets in the future.

The Jarrett couple’s taxation legal action

According to Bloomberg, the protagonists of this lawsuit are Joshua and Jessica Jarrettc from Tennessee. They first filed a lawsuit against the IRS in 2021, claiming that the 8,876 tokens obtained through Tezos network staking in 2019 should not be taxed when acquired, but should be regarded as "new property" similar to crops or manuscripts, and are taxed only when sold.

At the time the IRS offered to refund $4,000 in taxes to settle the lawsuit, but the couple refused to accept it, seeking to set a broader legal precedent. They said:

"The government did not want to defend the position that the tokens I created through staking were taxable income. I needed a better answer. So I declined the government's offer to refund me."

In October 2024, the Joshuas filed a second lawsuit, seeking a refund of $12,179 in reward taxes from staking in 2020, and asked the court to file a lawsuit against the IRS A permanent ban was issued on the staking reward tax policy. They maintain that taxable income should only arise when such "new property" is sold.

U.S. Internal Revenue Service: Staking rewards should be taxed immediately

Faced with the claims of Joshua and his wife, the U.S. Internal Revenue Service responded that according to the guidelines issued in 2023, block rewards obtained through staking or mining are regarded as taxable income when generated, and the tax liability shall be based on its market value.

In earlier court documents filed on December 20, the IRS cited Revenue Ruling No. 2023-14, emphasizing that the pledged rewards should be taxed when acquired, refuting the Joshuas’ claim that the pledged rewards were “new property” and should only be taxed when sold.

Potential Impact

This case has received widespread attention and discussion, especially for blockchain networks that use the Proof-of-Stake mechanism, which may have a significant impact. The case is still pending. Will the court rule in the future to support that pledge rewards can be regarded as similar to other forms of property and are taxed only when realized, or should they be taxed as immediate income? All will become an important watershed in U.S. cryptocurrency tax policy and deserve our continued attention.