Congressional lawmakers urge the IRS to craft proactive tax policy for crypto staking rewards

A group of Congressional lawmakers have sent a letter to the Internal Revenue Service (IRS) that urges the U.S. tax agency to write policy that does not impede proof of stake technology.

Representatives David Schweikert, Bill Foster, Tom Emmer and Darren Soto addressed IRS Commissioner Charles Rettig, explaining how staking works and why existing tax policy could directly impact U.S. interest in and utilization of the technology.

"It is possible the taxation of 'staking' rewards as income may overstate taxpayers' actual gains from participating in this new technology," read the letter. "It could also result in a reporting and compliance nightmare, for taxpayers and the Service alike."

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The group of lawmakers called for staking rewards to be taxed as they are sold, since those who help validate transactions create the new tokens as well as append new blocks on the blockchain. Other forms of taxpayer-created property, like crops and artwork, are taxed as they are sold, and the letter's signatories argue that tokens produced via staking are more like these assets.

The Proof of Stake Alliance (POSA), an organization of industry members dedicated to promoting staking, worked closely with the representatives on the language of the letter, according to a statement.  Alison Mangiero, President of POSA member company TQ Tezos, said the letter offers a "common-sense solution" for the regulator to support staking.

"Staking rewards, similar to a farmer cultivating produce and selling it at market, should be assessed for taxation when they are sold: we don't tax an apple when it is plucked from a tree or a tomato fresh off the vine," said Mangiero in a statement.

Schweikert, Emmer, Soto and Foster are all members of the Congressional Blockchain Caucus — a bipartisan group of Congressional members focused on advancing policy around the technology. The group has previously backed legislation intended to support the development and use of cryptocurrencies and blockchain.

About Author

Aislinn Keely is a reporter on The Block's policy team holding down the legal beat. She covers court decisions, bankruptcies, regulatory actions and other key moments in the legal sphere, putting them in context for the wider crypto industry. Before The Block, she lent her voice to the NPR affiliate WFUV and helmed Fordham University's student newspaper. Send tips or thoughts on all things policy and legal to [email protected] or follow her on Twitter for updates @AislinnKeely.