Profits earned by staking cryptocurrency should not be considered a taxable event. It only makes sense to tax such benefits when converted into legal tender currency. To do otherwise undermines the marquee environmental policies of the administration of United States President Joe Biden.
The Internal Revenue Service seems very inclined to treat staking profits as direct income. The penalties for falling foul of the IRS can be draconian. And taxing, or threatening to tax, staking gains is bad policy – and, ahembad politics.
There are many reasons not to treat staking profits in and of itself as a taxable event. The best reason is to keep the IRS in line with the White House’s environmental policies to fight climate change.
If the IRS is not administratively complying with the Biden administration’s clear marquee policies, it’s time for Congress to clarify the law and ban the unrealized benefits tax.
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Deferring the benefit until it is sold only delays the receipt of tax by the Treasury. It does not cost the government even one thin satoshi. Become, what’s up?
Crypto is legally subject to taxation in many ways. You will pay taxes when you sell your crypto, or even exchange it to another form of crypto. (Elsewhere, we are asking Congress to enact a moratorium on crypto-to-crypto exchanges, a subject that is beyond the scope of this article.)
Taxing staking gains is antithetical to the White House’s clear marquee policies. It is also antithetical to the generally accepted understanding of good tax policy.
Uncle Sam didn’t pay Jasper Johns taxes when he turned a blank canvas into a million dollar work of art. They are not taxed when they ship to the gallery where they sell at the posted price. He will be taxed when he is presented with a million dollar check for his latest work.
This obviously makes sense. Uncle Sam won’t take a piece of the painting (or even a fractional interest in it) to pay taxes. How will artists pay taxes on works in progress or works that are just sold? Taxing artwork during creation would be ridiculous!
Uncle Sam didn’t pay the building contractor’s tax when he built the house, or even when he turned it over to the realtor to sell it. The IRS collects the tax at the time of sale.
This obviously makes sense. One can only guess at the value of the asset until it is sold, and even then, one does not have the cash to pay taxes until the sale proceeds are received. In addition, the IRS does not “do the window” – or take wood or other tax payments. The tax on houses under construction would be preposterous!
Taxing staking results while they are in the process is nonsensical and inconsistent with the treatment of other assets created. The IRS has created a real Alice in Wonderland policy on this. And taxing the proceeds is not American, and American, the real damage, driving the creation of wealth and good jobs offshore (against the policy of the president stated)!
However, perhaps the most important reason for the IRS to end the tax – and, if not, for Congress to quickly fix this – is that President Biden has made reducing CO2 emissions a signature administration priority.
The IRS taxes staking gains when they occur (rather than when the gains are sold or exchanged) undermining two of the administration’s top priorities: onshoring good jobs and fighting climate change. Bureaucracy defeating democracy? embarrassing!
Support from Democrats on the Hill for party leaders to ban the tax on staking gains may be considered. And of course there are enough sophisticated Republican Congresspersons to pass a law prohibiting the taxation of staking gains.
related: Get ready for more incompetent IRS agents in 2023
So, what (nothing) is at stake? Crypto Proof-of-work uses more energy, produces more emissions than proof-of-stake. According to a White House Office of Science and Technology fact sheet dated September 8, 2022:
“From 2018 to 2022, the annual electricity use of global crypto assets is growing rapidly, with electricity use estimated to quadruple. […] Switching to alternative crypto-asset technologies such as Proof of Stake could reduce overall power usage to less than 1% of current levels.
Taxing those benefits before they are realized will also paralyze the movement for proof-of-shares.
To summarize, there are insurmountable practical problems in implementing assets at creation. People can only estimate the value of an asset until it is sold. The IRS does not accept payments in kind (what is even possible, as often is not).
Many taxpayers do not have real money to pay taxes until they know the results of the sale. It is cruel and counterproductive to turn respectable citizens into tax cheats and criminals through bad regulations. It will drive crypto, and jobs and wealth creation, out of the United States. And delay the tax until the sale is delayed, but do not pay the government tax.
Most notably, the treatment of staking benefits as a taxable event undermines the Biden administration’s top priority of creating jobs and reducing CO2 emissions.
Stop treating profit staking as a taxable event! If Biden and the IRS are tone-deaf, Congress needs to address the issue.
Todd White is the founder of PAC Blockchain America. Ralph Benko is a senior advisor to the group.
This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.