A group of US Congress members is asking the Internal Revenue Service (IRS) to clarify its position on crypto staking rewards.
In the letter dated July 29th, lawmakers David Schweikert, Bill Foster, Tom Emmer, and Darren Soto explain to IRS Commissioner Charles Rettig the difference between proof-of-stake and proof-of-work protocols.
“The Bitcoin network is secured by a relatively small number of ‘miners’ who validate transactions as they ‘mine’ new Bitcoins. In ‘proof of stake,’ in contrast, all token holders can contribute to network security by ‘staking’ their tokens, and so many, or even most, token holders end up holding newly created tokens. This means that network security in proof of stake does not require massive amounts of energy consumption.”
The lawmakers say tax policies should not discourage American taxpayers from taking part in the growth of the nascent sector. The legislators want the IRS to levy taxes only when the staking rewards are sold and not when received.
“It is possible the taxation of ‘staking’ rewards as income may overstate taxpayer’s actual gains from participating in this new technology. It could also result in reporting and compliance nightmare, for taxpayers and the Service alike…
Similar to all other forms of taxpayer-created (or taxpayer-discovered) property, such as crops, minerals, livestock, artworks, and even widgets off the assembly line – these tokens could be taxed when they are sold.”
The letter is the latest in a series of efforts from Congress to address IRS policies on cryptocurrencies.