The IRS is expanding tax bases to align with its cryptocurrency agenda. A net creation in the tax record was never a taxable event. However, the tax authorities are keen to tax new tokens as income at the time of their creation. This is a violation of traditional tax principles and is problematic for several reasons.

In 2014, the IRS stated in the FAQ section of the IRS Notice 2014-2021 that mining would result in total taxable income. It is important to note that IRS notices are guidelines only, not law. The tax authorities concluded that mining is a trade or business and that the true market value of coins is immediately taxed as regular income and as self-employed workers (an additional 15.3%). However, this guide is limited to Proof of Work miners and was only released in 2014 – long before it became popular. Its applicability to voltage is particularly deceptive and unworkable.

Related Topics: More IRS Crypto Reports, More Risks

A recent lawsuit, now pending in federal court in Tennessee, challenges the taxes imposed by the IRS in setting construction fees. Attorney Joshua Jarrett was involved in installing the Tezos blockchain – which supplied Tezos (XNZ) and gave him computing power. New blocks were created on the Teso blockchain, resulting in Jarrett’s new Tezos being created. The IRS taxed the newly created Jarrett tokens as gross taxable profit based on the fair market value of the new Tezos tokens. Garrett’s lawyers rightly note that newly created real estate is not taxable. This means that new property (here, newly created Tezos tokens) is taxed only when it is sold or exchanged. Jarrett is backed by the Proof of Stake Alliance, and the tax authorities have yet to respond to Jarrett’s complaint.

taxable income
In the history of US income tax, newly created estates have never been taxed. If the baker bakes the cake, it is tax deductible when it comes out of the oven, and taxable when it is sold in the bakery. When a farmer grows a new crop, it is not taxed when it is harvested, and is taxed when it is sold in the market. And when the artist paints a new picture, it is not taxed, and upon completion, it is taxed when it is sold in a gallery. It’s the same with newly created icons. It is tax-free upon creation and should only be taxed on a sale or exchange.

Cryptocurrency is news and there are a lot of evolving terms associated with it. Although newly created premium blocks are commonly referred to as “bonuses,” this is a misnomer and can be misleading. Calling something a bonus indicates that someone else is paying for it, and that sounds like taxable income. Nobody actually pays a new token to an interested party – it’s a new token. Instead, the position actually creates the newly created properties.

Related: Multiple IRS Notices to Crypto Account Holders

Some speculate that new tokens are taxed (upon creation) because it is an established market in which value can be immediately measured. In other words, they argue that baked goods are tax-deductible at the time of creation because there is no set market price that determines how much a cake will cost. It is true that Tezos tokens have an immediate market value, but even this fact must be taken into account in context: prices can vary by market, and not all markets are available to everyone. But having a market price is often right when it comes to new properties – not just for standard or commercial products. If it normally has a specific market value, then other newly created properties, including unique properties, will already be taxed. When Andy Warhol finished painting, this was the market value of his work; It had a value per brush stroke. However, his paintings were not taxed upon creation. Newly created property – in all contexts – has never been taxed, not because its value may be uncertain, but because it is not yet income. Cryptocurrencies should be treated the same way.

Other comparisons with traditional tax principles are misplaced and inconsistent. For example, not in the form of dividends. The IRS states in its 404 distribution that “a dividend is a distribution of property that a company pays you if you own stock in that company.” Thus, a dividend is a method of payment that comes from the source – the company creates a dividend.

Source: CoinTelegraph