Crypto holders earning new tokens by staking their coins might be at risk of being overtaxed, believe several members of Congress.
Four lawmakers wrote a letter to the Internal Revenue Service Wednesday, asking the U.S. tax agency to ensure stakers don’t face tax liabilities for receiving block rewards before they sell their new tokens.
The letter, dated July 29, was sent to IRS Commissioner Charles Rettig, Chief Counsel Michael Desmond and Assistant Secretary for Tax Policy David Kautter and was signed by the Congressional Blockchain Caucus’ co-chairs Reps. David Schweikert (R-Ariz.), Bill Foster (D-Ill.), Tom Emmer (R-Minn.) and Darren Soto (D-Fla.).
“It is possible the taxation of ‘staking’ rewards as income may overstate taxpayers’ actual gains from participating in this new technology,” the letter said. “It could also result in a reporting and compliance nightmare, for taxpayers and the Service alike.”
The caucus clarified staking rewards should be taxed appropriately. “We believe that taxpayers’ true gains from these tokens should indeed be taxed,” the letter said.
Abraham Sutherland, a lecturer at the University of Virginia, told CoinDesk these concerns include the fact that staking protocols could create new blocks – and therefore, release new tokens – every few minutes, hours or days.
Each of these blocks could be treated as an independent taxable event, meaning taxpayers could potentially have hundreds of taxable events every year, which would be a headache for both the taxpayer and the IRS to assess, he said.
Treating staking as a source of income might cause issues for participants in the U.S., said Sutherland, who assisted in writing the letter.
The metaphors individuals use to explain staking might be misleading in a harmful way, he said, although the implications might not be immediately obvious.
“The example here is it’s…