The long-awaited digital asset law was introduced this month in the United States. It gives clarity that could change the outcome of a court case that is already going on.
The Responsible Financial Innovation Act, which is backed by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., says that miners and speculators would only have to pay income taxes on realized rewards, which is when the corresponding digital assets are sold.
The measure says that money made from mining and staking digital assets “must not be included in the taxpayer’s gross income” until the assets are sold or traded.
A Nashville couple has been fighting for more than a year to change a tax law that would be changed by this provision.
In a lawsuit filed with the US District Court for the Middle District of Tennessee on May 26, 2021, Joshua and Jessica Jarrett asked for a refund of $3,293 in income tax they paid in 2019 because they got 8,876 Tezos tokens in May 2021. Also, they wanted their tax credits for lost income to go up by $500.
The Jarretts said that tokens earned through proof-of-stake protocols should not be taxed until they are sold or traded. The case says that neither U.S. law nor the IRS code and rules allow taxpayer-made property to be taxed as income.
In December, the Jarretts got their tax money back from the IRS. The couple said no and decided to keep fighting in court. In March, the Justice Department asked that the lawsuit be thrown out. At the moment, a trial by judge is set for March 2023.
At the moment, stakers and miners have to pay taxes on their winnings as if they were income, even if the tokens were sold or given to someone else.
Andrew Gordon, the owner of the Gordon Law Group and a tax attorney, said, “This has been a disaster for some clients who stake, for example, UST and some of these really high-yield staking sites.” “You have to pay tax on these prizes based on their fair market value when you get them, not when you sell them.”
Gordon said that if this plan is passed, it will be a big reason for miners and investors to come to the U.S.
Before being sent to committee, the crypto law will go through a strict review process. Gillibrand is on the agricultural committee, which has control over the Commodity Futures Trading Commission. Lummis, on the other hand, is on the banking committee, which has control over the SEC.