- Four U.S. congressmen have asked the IRS to clarify their position on taxation of staking rewards
- Current rules are unclear and may put individuals off getting involved with staking
- Staking could prove to be a lucrative sideline in time
Four U.S. congressmen have written to Inland Revenue Service (IRS) Commissioner Charles Rettig asking that the service consider appropriate taxation for those involved in cryptocurrency staking via the Proof-of-Stake (PoS) consensus mechanism. Cryptocurrency taxation has been the stuff of nightmares for some over the years, especially since the IRS began clamping down on cryptocurrency gains going back to 2013, and with staking of tokens becoming a potentially lucrative side stream of income, fair and accurate taxation is essential for it to be attractive to those wishing to get involved.
Staking Could Cause “Reporting and Compliance Nightmare”
In the letter, the four congressmen, Bill Foster of Illinois, Darren Soto of Florida, Tom Emmer of Minnesota, and David Schweikert of Arizona, state their concerns that a tax policy regarding income from staking needs to be fair and relevant and must not “dissuade U.S. taxpayers from participating in this promising technology”:
…we believe that taxpayers’ true gains from these tokens should indeed be taxed. However, it is possible the taxation of “staking” rewards as income may overstate taxpayers’ actual gains from participating in this new technology. It could also result in a reporting and compliance nightmare for taxpayers and the Service alike.
Under current guidelines it is unclear how staking rewards should be taxed, with the standard practice at the moment being to include it as income. This is the same for many other tax jurisdictions such as the UK, where crypto income gained from non-trading activities is considered as income.
However, as experience has shown, the IRS isn’t always accurate or fair when it comes to calculating income, and with such a new technology as staking there is the potential for those wishing to participate to be frightened away by the threat of an unfeasibly high tax bill.
Concerns Shared Elsewhere
The concerns of the congressmen reach further than just taxation of staking income however, warning that concerns such as those they raise need to be taken into consideration to ensure that “innovation won’t be driven elsewhere”.
These worries echo similar ones shared previously by others working in the blockchain and cryptocurrency space in the U.S., who have warned that the country faces the prospect of falling behind in the blockchain race because of slow or heavy handed regulations.