US IRS Introduces Broad Category for Digital Assets Ahead of Tax Season

The United States Internal Revenue Service (IRS) is preparing for the forthcoming tax season, especially as it concerns digital assets.


According to a draft bill published by the tax regulator, investors in the US will be able to see if and how they are supposed to report their digital assets which include crypto coins and Non-Fungible Tokens (NFTs).


The 2022 draft IRS Tax forms have created a new category dubbed “Digital Assets” for the different categorizations of assets that are tied to the emerging blockchain industry. To give a more emphatic and clear picture of the obligations it places on taxpayers, the IRS defined Digital Assets as;


“..any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”


In order to avoid any gray areas, the IRS stated that any digital asset that behaves in similarity to these assets per this definition will be treated as such.


The regulator stated some set of conditions under which Americans will need to give affirmations based on their crypto holdings. Per the draft bill, anyone who has received payment in cryptocurrencies over the past year received or gifted the assets categorized as digital assets amongst other conditions will have to properly report these items.


Taxing crypto gains is a very volatile subject of discourse in the global ecosystem, and based on their cryptographic nature, the government believes more people choose to hide their crypto transactions in a bid to evade taxes.

The IRS has been exploring quite a number of tailored solutions that can enable them to monitor crypto transactions in a bid to make everyone accountable. Besides working with exchanges to get necessary data on request, other private service providers are also helping the IRS develop tools that can aid its crypto tax goals.

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U.S Court Issues John Doe Summons to Taxpayers that Failed to Remit Crypto Taxes

The United States District Judge, Paul G. Gardephe has granted permission to the Internal Revenue Service (IRS) to issue what is called a John Doe summons on M.Y. Safra Bank to release information about customers who may have failed to remit taxes received from conducting crypto transactions.


According to a court order, Gardephe specifically asked SFOX to produce information about its customers who use M.Y. Safra Bank to make cryptocurrency payments. SFOX is a complete crypto dealer that provides crypto services for institutional investors that provide the liquidity, security and infrastructure needed to open the full potential of digital assets.

SFOX collaborated with M.Y. Safra to offer SFOX customers access to bank accounts for depositing and withdrawing cash. 

SFOX users could use their money on M.Y. Safra to buy and sell positions in SFOX virtual currency. IRS, therefore, expects M.Y. Safra to provide information on the identity and crypto transactions of SFOX customers based on their partnerships so as to determine if IRS laws are complied with.

SFOX has a record of over 175,000 registered subscribers on its platform that have collectively performed transactions of over $12 billion since 2015. The IRS also stated that a third party is required to report such virtual transactions to them.

The IRS Commissioner Charles P. Rettig said in a statement that;

“The government’s ability to obtain third-party information about individuals who have failed to report their digital asset income remains an important tool for tax evasion.” According to him, the John Doe summons is a step in the right direction towards ensuring that everyone pays their taxes according to what they earn.

The U.S IRS issued a warning letter in 2019 to crypto owners stating that taxpayers must pay taxes owed or file amended tax returns for their cryptocurrencies

“Taxpayers should take these letters very seriously by reviewing their tax returns and, if necessary, amending previous returns and paying back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig.

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Coin Center Sues IRS For Unconstitutional Tax Reporting Rules

Coin Center, a Washington DC-based Not-for-Profit organization with a focus on crypto policies, has filed a lawsuit against the United States Treasury and the Internal Revenue Service (IRS) for a tax reporting requirement it wants to pass into law.


Coin Center said the reporting requirement as detailed in the “Infrastructure Investment and Jobs Act” will require users to report transactions of $10,000 and above. The Bill demands the receiver of the funds to share the name of the sender, their date of birth, and their Social Security Number (SSN). According to the Coin Center lawsuit:

“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans,” the organization said on its website, adding that “uncover a detailed picture of a person’s personal activities, including intimate and expressive activities far beyond the immediate scope of the mandate. The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”

Coin Center is advocating that every American has the right to conduct whatever transactions they wish to conduct within a protected level of privacy that is designed.

Coin Center also noted that its “mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.”

The United States government has been doing all it can to provide long-sought oversight over the digital currency ecosystem and one of the most proactive ways it is doing this is by expanding the existing taxation provisions. While the Coin Center lawsuit is still very new, it is an indication that the crypto industry might be more resistant to whatever regulation they deem unfavourable.

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India to Consider Levying 28% Tax on Crypto Transaction

Through the Goods and Services Tax (GST) body, India is mulling the idea of levying a 28% tax on transactions bordering on digital currencies in the Asian nation. (1).jpg

As reported by CNBC-TV18, the proposal is the brainwork of the law committee of the GST and is bound to be reviewed by a fitment committee before the government body adopts the new rule and makes it binding.

The new proposed rate will be 10% more than the current rate being charged, and if passed, it will further showcase India’s stance as being somewhat unfriendly to the nascent asset class as expected.

India has been particularly hitting the crypto ecosystem with a lot of taxes lately, and just this past April, the government imposed a 30% income tax on holders of the cryptocurrency. While taxation accounts for how the crypto ecosystem has agreed regulators can permit crypto to thrive on their shores, the tax rates can notably make cryptocurrency transactions generally unattractive, especially to the retail traders.

However, there are a lot of considerations that the law committee will make of the GST Council before pushing the proposal ahead. Some of these considerations include whether the cryptocurrencies are being used as payment for goods and services or as investment assets and more.

“There are various aspects of cryptocurrencies – the transactions involving cryptos, cryptos being used to make purchases, cryptos being received as payments. All these aspects are under examination and will be discussed by the law committee,” sources close to the matter told CNBC.

Currently, the GST Council considers crypto just as casinos, horse racing, and betting activities are classified. The high taxation is levied on considering the high-risk venture the transactions involving virtual assets can be. 

While the stakeholders in the cryptocurrency ecosystem have long been in talks with the Indian government to adopt regulations rather than an outright ban for the nascent asset class, it is unclear whether consultations will be made with industry leaders concerning the proposed new tax rates.

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U.S. Crypto Investors Reject IRS Settlement

Key Takeaways

  • A married couple in Tennessee have claimed that the U.S. government offered them a tax refund after improperly taxing their crypto staking rewards—but they are refusing it.
  • In 2019, Joshua and Jessica Jarrett sued the Internal Revenue Service for taxing them on unsold crypto rewards earned by staking on the Tezos blockchain.
  • The Jarretts’ case draws attention to certain inconsistencies in the IRS’s policies and seeks to force clarity on the matter.

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Joshua and Jessica Jarrett, a married couple in Tennessee and plaintiffs in a suit against the Internal Revenue Service, have said that they are rejecting a settlement offer from the government body; instead, they and their legal sponsors want to make the IRS defend its position in court.

Taxpayers Want IRS To Clarify Crypto Policy

A pair of Tennessee taxpayers have rejected a settlement offer from the IRS and are instead insisting upon regulatory clarity.

In 2019, Joshua and Jessica Jarrett were taxed on 8,876 Tezos tokens they received by staking on Tezos blockchain. These tokens were taxed as ordinary income, though the Jarretts contend those tokens should only have been taxed upon their sale. In 2020, the Jarretts sued the IRS for damages.

Their case was supported by the Proof of Stake Alliance.

Received property is treated as income for tax purposes in the United States; however, the Jarretts and POSA have argued that tokens awarded to the Jarretts were not technically “received” property at all, but instead “new” property.

Writing in the complaint that “no express provision of 26 U.S.C. §61 or any regulation thereunder treats as gross income an item of property created by a person,” the plaintiffs’ team goes on to argue that “new property—property not received as payment or compensation from another person but created by the taxpayer—is not and has never been income under U.S. federal tax law.”

In other words, the suit argues that the Jarrett’s “created” property by staking their Tezos tokens, and that therefore this property should not be taxable until it is sold, for it is only at the point of sale that the taxpayer realizes any gains.

Waving the White Flag

In December 2021, the IRS appeared to concede and offered the Jarretts a refund of $3,793, plus interest. However, they opted to reject it with the hope of receiving a “better answer” from the IRS regarding the agency’s official policy on mining and staking rewards.

Joshua Jarrett wrote in an official statement he shared on Twitter:

“At first glance, this seemed like great news. But until the case receives an official ruling from a court, there will be nothing to prevent the IRS from challenging me again on this issue. I need a better answer. So I refused the government’s offer to pay me a refund.”

The Jarretts’ refusal of the settlement would appear to be an effort to compel the IRS to clarify its policy of taxing staking rewards as income in front of a U.S. court. POSA believes the court case will help remove the confusion over the taxation of staking rewards.

“For the sake of fair tax administration and American innovation, I hope the IRS follows this up quickly with clear guidance that staking rewards aren’t taxable income,” Alison Mangiero, Board Member and acting Executive Director of POSA, said in a statement.

A bench trial is slated to start in March 2023, according to a court document. The outcome from the lawsuit may have far-reaching implications for crypto tax policy in the U.S.

Disclosure: At the time of writing, the author of this piece did not hold any of the aforementioned cryptocurrencies.

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Why did WazirX token WRX jump 30% after India announced its big crypto tax?

WazirX exchange’s native token WRX benefited the most from India’s latest u-turn on crypto this week.

WRX price jumps on India tax news

WRX price surged nearly 30% to over $1, hitting a three-week high after the Indian government announced a new tax regime for the regional crypto sector, reversing entirely from its earlier strict stance that even contemplated an outright ban on the emerging industry.

In her budget speech on Tuesday, Finance Minister Nirmala Sitharaman said that they plan to tax the income from trading cryptocurrencies at 30%, which while among the highest rates in the world, also means that digital assets are officially recognized in India.

WRX price jumped after Sitharaman’s speech, probably due to its association with an India-based crypto exchange, WazirX. The WRX token serves as a utility token on the platform, benefitting users with trading fee discounts and access to new token airdrops. 

Another 250% rally ahead?

Utility tokens typically derive their value from speculations that their adoption would grow in tandem with the growth of their platform, one that is no longer in regulatory limbo. 

Javon Marks, an independent market analyst, predicted further price booms in the WRX market, noting that the WazirX token could climb toward $3.80 from its current $1-levels. At the core of his bullish analogy was a technical setup, as shown in the attached chart.

WRX/USD three-day price chart. Source: Javon Marks, TradingView

In detail, WRX’s ongoing price boom had its price break above a multi-month downward sloping resistance trendline. Marks noted that the breakout “technically” positions the WazirX token to rise by another 252% in the coming sessions to its April 2021 resistance targets.

“As long as WazirX holds this break, this target will remain pushable,” the analyst tweeted Wednesday.

The statement also surfaced as the crypto market, on the whole, remained in a state of turmoil after a depressive January performance. WRX itself dropped more than 30% into the month, mirroring similar moves across the top-ranking crypto-assets, including Bitcoin (BTC), which tanked nearly 18% in the same period.

The interim pullback scenario

WazirX’s day-to-day correlation with broader crypto market trends, however, puts WRX at risk of bearish continuation. It is primarily because the catalysts that played a key role in pushing the digital assets lower in January 2022 — the Federal Reserve’s hawkish turn — remain intact.

Related: Bitcoin ‘gives back gains’ after Fed comments ‘add downside risks’ to crypto markets

Additionally, the WRX price faces a technical resistance confluence that may limit its recovery bias in the sessions ahead. Specifically, a combination of price ceilings, including a descending triangle’s upper trendline, have already been capping the WazirX token’s upside attempts.

WRX/USD daily price chart featuring descending triangle setup. Source: TradingView

Other resistance levels include a 50-day exponential moving average (50-day EMA; the red wave) and a 200-day EMA (the blue wave). A pullback upon testing them risks dropping the WRX price to the descending triangle’s lower trendline near $0.75.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.