Tezos Holders Launch New IRS Lawsuit Over Staked XTZ Tokens

Two Tezos (XTZ) investors are taking the IRS to court once again over the agency’s treatment of their staked XTZ tokens.

In a new complaint filed with a Tennessee Federal court, Josh and Jessica Jarrett contend that newly minted tokens from staking should only be treated as taxable if they are sold.

“New property is not taxable income; instead, taxable income arises from the proceeds from the sale of that new property. In all other contexts, the IRS recognizes that new property is not taxable income. When a taxpayer creates new property—whether a farmer’s crop, an author’s manuscript, or a manufacturer’s product—he is not taxed until he sells it. Only upon sale of new property does income ‘come in.’ As the leading treatise explained in the year that the income tax was introduced, ‘the measure of taxable net income is not the amount or value of the products of the year’s operation, but the net proceeds of sales.’”

The Jarretts first sued the IRS on similar grounds in 2021, seeking refunds for taxes they paid on staked XTZ tokens. The case was dismissed after the Jarrets were offered a $4,000 settlement.

Now, the Jarretts again seek refunds for staked tokens and a permanent end to what they see as the IRS’s treatment of newly minted crypto property as taxable income.

The lawsuit is supported by the prominent crypto advocacy group Coin Center.

Said Coin Center in a statement,

“Josh’s case has important implications for the future of cryptocurrency and decentralized technologies. It is especially important for proof of stake, where tokens, not hash power, determine one’s ability to validate transactions and help build the blockchain. Since every token holder can stake, this means the tax issue affects everyone.”

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