United States: a court rules that the staking of cryptocurrencies should not be subject to tax

It is a decision with serious consequences that has just been taken by a court in Tennessee. It could have the value of jurisprudence on the scale of America and from there, influence the legislation of many countries, including France.

The practice that is concerned by this judgment rendered on February 3, 2022 concerns the practice of staking. It supposes to immobilize a certain volume of a crypto-asset. In other words, we agree not to touch these assets for a relatively long period, for example for one year. Whoever does this agrees to take a risk: he will not be able to take advantage of the fluctuations of the cryptocurrency concerned throughout this period. If the currency were to see its course collapse, he will not be able to sell his assets because they are thus “staked”. In exchange for stakingit is common for the creators of a currency to distribute tokens (tokens) as a reward.

Joshua and Jessica Jarret, a couple from Nashville, Tennessee, had thus carried out the staking of Tezos XTZ in the year 2019. This operation allowed them to receive, as a reward, 8,876 XTZ, the equivalent of 3,293 dollars. However, the American tax authorities considered that there was a taxable profit there.

Does staking result in taxable profits?

As early as May 2021, the Jarretts went to court to argue that, in their view, what was earned by staking cannot be considered income. Their reasoning is that by agreeing to immobilize their XTZs, they participated in reinforcing this cryptocurrency from Tezos. According to them, staking must therefore be assimilated to the creation of property.

As pointed out by their attorneyDavid L. Forst: “ Just as a baker who makes a cake uses an oven and ingredients, just as one can write a book using Microsoft Word and a computer, Mr Jarrett created property. And so, just like a baker or a writer, Mr Jarrett will not be liable for tax that as soon as he sells or exchanges this new property. »

According to lawyer David Forst, there is a “100 year history of tax laws” stating that new property created is not subject to tax. A Supreme Court ruling dating back to 1920 says one should only pay on admissions [d’argent]. However, the property created by a citizen is an act corresponding to an exit and not to an entry.

Jurisprudence that could spread

Thus, in the judgment rendered on February 3, the tax authorities agreed with the Jarret couple and indicated that they would be reimbursed for the tax deducted for staking. However, an official position from the IRS (US tax administration) remains to be obtained and, already in July 2020, four legislators had taken up the issue, asking that gains from staking not be taxed for as long as the rewards obtained were not actually used for a purchase or other financial transaction. For their part, Joshua and Jessica Garrett have hinted that they intend to work to influence the American administration in this direction, so that everyone can benefit from it.

This case law is important at a time when French legislators have not yet taken a position on the subject of staking. For the time being, LREM MP Pierre Person has been the iron from spear to matter proposals for easing the taxation of cryptocurrenciesbut with few notable results to date.