Congressional Delegates puts in a request with IRS urging them to Simplify Tax On Crypto Staking Rewards. They want the policy to not be an obstacle to proof of stake technology. Similarly, it asks to clarify the Internal Revenue Service stance and simplify tax on Crypto Staking rewards.
What is Congressional Lawmakers opinion on Crypto Staking?
Representatives Mr. Schweikert, Mr. Foster, Mr. Emmer and Mr. Soto explains the basics of staking in a letter, to IRS.
In Proof of Stake validation mechanism, token holders contribute together towards network security via “staking” the blockchain’s currency. As a result, you have skin in the game and will want the network to succeed. By participating in the network security, tokenholders receive new tokens as the staking rewards. So, not much energy consumption happens in the proof of stake chain.
The emphasis is on the existing tax policy hindering the innovation and interest in the crypto space in the US. Also, it doesn’t help companies that want to utilize blockchain technology to build innovative solutions.
In the letter to Internal Revenue Service Commissioner Mr. Rettig, the congress representatives
The non-clarity in taxation stance of staking rewards from IRS actually hurts the space. Taxing notional staking gains as ordinary income may increase actual tax liability of early adopters. So, this may thwart the interest in experimenting with this new tech. More than paying taxes, it can create tracking and compliance issues for both honest taxpayers and the company.
Crypto Staking Rewards Taxation Clarity
The Congress representatives wants staking rewards taxation question to come in to place only when someone sells them. These early adopters are really needed for any new technology to succeed. In addition, these enthusiasts validate transactions and strengthen the network, along with attaching new blocks in the blockchain.
The request for IRS is to treat Crypto staking rewards in the same lens as any other property. Honest taxpayers will report as they sell and pay the gains from the cost basis. So, adding this clarity will help attract a lot more users who are on the sidelines to observe regulatory stance.
Proof of Stake Alliance (POSA) is a network of crypto staking industry members who wants to promote staking. So, they worked really closely with the Congress representatives on the letter to IRS.
Upon seeing the news public, they took to a Medium post to thank the representatives’ efforts. They totally believe the clarity seeking letter also suggests a solution that’s a no brainer to support and promote staking.
Staking rewards is analogous to an organic farmer farming produce and then selling it at the common market. The taxation concept applies only upon transaction takes place. Similarly, crypto staking rewards shall be no different.
IRS Crypto Prejudice Issue
The IRS is already under fire for not releasing a clear tax payer Crypto disclosure. IRS’ watchdog, Tax Payer Advocate Service, is an independent department that investigates IRS violations. They already pointed out in 2019 that IRS did violate the congressional enforcement through Bill of Rights for the Taxpayers.
James Harper is the first to volunteer and sue Internal Revenue Service for violating constitutional 4th and 5th Amendment rights. This is for non legal annexation of his private records in July.
It is great to see the Congressmen and Congresswomen come together to push clarity and simplify tax on crypto staking rewards. Cardano, through Shelley upgrade, recently started staking. Tezos has staking capability for a few months. As a result, ETH 2.0 which is about to release in November, will start with staking rewards out of the box.
In conclusion, this regulatory clarity push comes at the right time for Cryptocurrencies to flourish with the proof of stake mechanism.