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21 January 2021

How IRS Tax Rules May Apply to Ethereum 2.0 - Decrypt

How IRS Tax Rules May Apply to Ethereum 2.0 - Decrypt


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Brown also clarified that, in his view, rewards from any proof-of-stake validation (not just from Eth2) would probably count as ordinary income from a tax perspective, unless those rewards were dilutive, and split up existing tokens rather than awarding new ones.

Weiss toldDecryptthat the group’s lobbying actually resulted in aletterfrom the four heads of the Congressional Blockchain Caucus (Darren Soto [D-FL-9], Bill Foster [D-IL-11], Tom Emmer [R-MN-6], and David Schweikert [R-AZ-6]) to the IRS, essentially asking that proof-of-stake rewards be taxed only when they’re sold, as opposed to when they’re initially created for the stakers.

“Similar to all other forms of taxpayer-created (or taxpayer-discovered) property — such as crops, minerals, livestock, artworks, and even widgets off the assembly line — these tokens could be taxed when they are sold,” says the letter.

Shehan Chandrasekara, head of tax strategy at the crypto software company CoinTracker, echoed Weiss’ concern that it’s not a matter of whether the rewards are taxable, but how they should be taxed.

“The question is when they should be taxed (at the time of the receipt vs at the time you sell them).”.

If they are in fact distinct, Chandrasekara asserts, then converting ETH1 to ETH2 (in the same way that you exchange one fiat currency for another) could be a taxable event

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