4 US Congressman wrote to IRS to ease tax on POS rewards

[Shasha80]

Seeing the 4 names of the congressmen who signed the letter, there are several names like Tom Emmer who are indeed
pro cryptocurrencies. So of course this is an interesting thing that has never happened before, I will continue to wait for
the outcome of the decision letter presented to the IRS. But my feeling is that the IRS will reject the request from the letter,
considering that the 4 congressmen are not powerful persons.

[Darker45]

However, there is one thing I noticed which the congressmen might have overlooked. It is the probable assumption behind this line: "...these tokens could be taxed when they are sold." I am not sure whether there are many shops or stores which are accepting PoS altcoins such as DASH, Tezos, ATOM, or other PoS coins, but it is very possible that these coins could actually be treated as money, I mean spendable on its own. And so tax should be imposed to PoS coins even if they are not sold.

Sold and spending tokens are 2 different things. I think they meant when you exchange the altcoin for fiat rather than using the token to buy goods/services.

My point is that they are comparing these tokens to things such as "crops, minerals, livestock, artworks, and so on" which would be taxed when they are sold. However, say, I would stake Ethereum as soon as they have already fully shifted to PoS, and so I would be receiving regular income in ETH. And I would use the same ETH for buying stuff. I might end up not taxed at all from my staking income if I would not ever convert my ETH to fiat but spend them just the same. That would defeat what the congressmen are saying, that "we believe the taxpayers' true gains from these tokens should indeed be taxed."

[Yogee]

There are really a lot of questions here, but we all know that these kind of requests are not being granted by IRS or any agencies of US government so I doubt that there's something that will came out with this letter.

I don't. How do you know it won't be granted by the IRS?

Last year, there were 8 congressmen who urged IRS to issue guidelines for for taxpayers who use cryptocurrencies and it was granted. They also asked treatment for hardforks and airdrops.

We wrote in April of this year urging the issuance of guidance for taxpayers who use cryptocurrencies and we are pleased to see that you have issued guidance and addressed many questions we posed. We are, however, concerned that this recent guidance creates many new questions related to the topics it seeks to address, namely forks and airdrops.

- https://cointelegraph.com/news/8-congress-reps-send-letter-to-irs-urging-further-crypto-tax-clarity

I wouldn't shut down the possibility given that the IRS is also paying attention to them. Maybe there will be revisions and IRS will come up with their own version but I wouldn't consider that as "request not being granted".

But I would agree, I have the same thoughts on why or what are the real intentions behind from these congressmen, why is something in POS that push them to write this letter in behalf of this type of consensus algorithm, is Vitalik behind all of this? hmm?. What incentives does this congressmen get in return?

Like I said above, they also asked, through a letter, about the treatment for hardforks and airdrops. Maybe a group like POSA (Proof of Stake Alliance) brought it to their attention but took them a bit more time to study it before they made a request to the IRS?

.........

However, there is one thing I noticed which the congressmen might have overlooked. It is the probable assumption behind this line: "...these tokens could be taxed when they are sold." I am not sure whether there are many shops or stores which are accepting PoS altcoins such as DASH, Tezos, ATOM, or other PoS coins, but it is very possible that these coins could actually be treated as money, I mean spendable on its own. And so tax should be imposed to PoS coins even if they are not sold.

Sold and spending tokens are 2 different things. I think they meant when you exchange the altcoin for fiat rather than using the token to buy goods/services.

My point is that they are comparing these tokens to things such as "crops, minerals, livestock, artworks, and so on" which would be taxed when they are sold. However, say, I would stake Ethereum as soon as they have already fully shifted to PoS, and so I would be receiving regular income in ETH. And I would use the same ETH for buying stuff. I might end up not taxed at all from my staking income if I would not ever convert my ETH to fiat but spend them just the same. That would defeat what the congressmen are saying, that "we believe the taxpayers' true gains from these tokens should indeed be taxed."

I also think "sold" in this case means converting POS coin rewards to fiat since these "crops, minerals, livestock, artworks, and so on" are usually sold for fiat because it's the legal tender. But the point you raised on vendors directly accepting eth as payment for goods or services is a good one and it should be clarified too.

"Sold in exchange of fiat currency"
"Sold in exchange of goods or services"

[Darker45]

However, there is one thing I noticed which the congressmen might have overlooked. It is the probable assumption behind this line: "...these tokens could be taxed when they are sold." I am not sure whether there are many shops or stores which are accepting PoS altcoins such as DASH, Tezos, ATOM, or other PoS coins, but it is very possible that these coins could actually be treated as money, I mean spendable on its own. And so tax should be imposed to PoS coins even if they are not sold.

Sold and spending tokens are 2 different things. I think they meant when you exchange the altcoin for fiat rather than using the token to buy goods/services.

My point is that they are comparing these tokens to things such as "crops, minerals, livestock, artworks, and so on" which would be taxed when they are sold. However, say, I would stake Ethereum as soon as they have already fully shifted to PoS, and so I would be receiving regular income in ETH. And I would use the same ETH for buying stuff. I might end up not taxed at all from my staking income if I would not ever convert my ETH to fiat but spend them just the same. That would defeat what the congressmen are saying, that "we believe the taxpayers' true gains from these tokens should indeed be taxed."

"Sold in exchange of goods or services"

In effect, you are not actually selling it, you are using it to buy what the other party is selling. It's not selling; it is spending. In comparison to selling those tokens for something which you will use to buy goods and services, in this case fiat.

I am not sure they have this notion that these PoS reward tokens, in and of itself, could act as money and should therefore not be compared to the likes of artworks or livestock.

With their assumption, the government might end up not receiving any tax at all, because staking participants have two options: whether to directly spend their tokens as they are and not imposed any taxes or convert them into fiat first and pay taxes. Well, provided these tokens are widely acceptable by merchants, I guess it is not hard to decide which option to take.

[Bttzed03]

Strange request. How can they be asking for easing tax on POS rewards when the IRS is silent on its treatment? When they released the 2014 tax on virtual currencies and its 2019 supplementary guidelines, POS rewards wasn't even mentioned. I've read that taxpayers are wondering whether it should be declared similar to mining income or as an interest income similar to how bank accounts earn interest. They should have asked for the proper declaration and reporting first.

~
I've been interested in PoS coins for a while now, though I don't own any at the moment, and I'm kind of shocked that congressmen are actually aware of their existence, much less concerned with the fair taxing of rewards from them.  It's also interesting to me that they proposed that taxation occur only upon the sale of the staking rewards.  I don't have any idea how PoS coin rewards are taxed now, but I'd assume they'd be considered to be income if they're taxed at all.  Maybe someone with some knowledge could clarify that.

As stated above, the current tax law is silent on this. Staking is similar to mining and I bet it would treated as such. Taxpayers who are staking should declare whether they do it as a "hobby" or as a "trade or business". Applicable tax is different between the two as laid out in the IRS guide (Notice 2014–21 specifically Q8 and Q9).

The logical reason I see why they proposed taxation of rewards at the point of sale (rather than at the point of receipt) is that it gives taxpayers the option to sell/trade/exchange the coin when its fair market value (in USD) goes down . Needless to say, doing such will result to lower taxes.

However, there is one thing I noticed which the congressmen might have overlooked. It is the probable assumption behind this line: "...these tokens could be taxed when they are sold." I am not sure whether there are many shops or stores which are accepting PoS altcoins such as DASH, Tezos, ATOM, or other PoS coins, but it is very possible that these coins could actually be treated as money, I mean spendable on its own. And so tax should be imposed to PoS coins even if they are not sold.

Sold and spending tokens are 2 different things. I think they meant when you exchange the altcoin for fiat rather than using the token to buy goods/services.

Perhaps these Congressmen used the word "sold" for simplicity's sake and we shouldn't get caught up with the term. IRS is clear on transactions regarding virtual currencies including cryptocurrencies.

In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.

[Yaunfitda]

There are really a lot of questions here, but we all know that these kind of requests are not being granted by IRS or any agencies of US government so I doubt that there's something that will came out with this letter.

I don't. How do you know it won't be granted by the IRS?

Last year, there were 8 congressmen who urged IRS to issue guidelines for for taxpayers who use cryptocurrencies and it was granted. They also asked treatment for hardforks and airdrops.

We wrote in April of this year urging the issuance of guidance for taxpayers who use cryptocurrencies and we are pleased to see that you have issued guidance and addressed many questions we posed. We are, however, concerned that this recent guidance creates many new questions related to the topics it seeks to address, namely forks and airdrops.

- https://cointelegraph.com/news/8-congress-reps-send-letter-to-irs-urging-further-crypto-tax-clarity

I wouldn't shut down the possibility given that the IRS is also paying attention to them. Maybe there will be revisions and IRS will come up with their own version but I wouldn't consider that as "request not being granted".

We can't really compare the circumstance, the IRS did issue the guidelines, but the request now is that they have to overhaul or readjust their tax 'treatment', and it could take some time, because there could be some process behind and not just rewrite and change it in an instance just because those congressmen ask them to do so.

[DarkDays]

Not sure how they could possibly tax POS rewards anyway?

Since inflation benefits the banks, shouldn't the banks be taxed on this inflation?

If they're trying to charge tax on what is essentially inflation distributed to network participants, then there is no difference between banks receiving newly minted fiat to increase the money supply...

[Yogee]

......
We can't really compare the circumstance, the IRS did issue the guidelines, but the request now is that they have to overhaul or readjust their tax 'treatment',

Maybe not but we can't completely ignore it either when considering the possibility of their request being granted. IRS has no fix guidelines on POS
rewards so there is really nothing to overhaul or rewrite.

and it could take some time, because there could be some process behind and not just rewrite and change it in an instance just because those congressmen ask them to do so.

That I can agree and I don't think anyone is also expecting a speedy change on the current tax laws on cryptocurrencies. Reading from the previous comments, there's a huge gap between the time the first guideline was issued and the time the supplementary guideline was released.
..........

.....
In effect, you are not actually selling it, you are using it to buy what the other party is selling. It's not selling; it is spending. In comparison to selling those tokens for something which you will use to buy goods and services, in this case fiat.

Whatever the case, rewards are exchanged or traded for goods and/or services.

I am not sure they have this notion that these PoS reward tokens, in and of itself, could act as money and should therefore not be compared to the likes of artworks or livestock.

IRS treat cryptocurrencies as property. Maybe that's what they were thinking when they compared it to other properties.

With their assumption, the government might end up not receiving any tax at all, because staking participants have two options: whether to directly spend their tokens as they are and not imposed any taxes or convert them into fiat first and pay taxes. Well, provided these tokens are widely acceptable by merchants, I guess it is not hard to decide which option to take.

This loophole is probably not what they had in mind when they wrote the request.

[0nline]

I doubt IRS is going to hear it but if IRS hears it and excludes POS rewards out of the tax calculation, that is going to be a big news for all POS coins and especially for ETH which is going POS in future. But I am wondering why these political personalities suddenly became interested in a specific blockchain technology and to that extent where they have sent a letter to IRS to exclude it from taxing! Do they have any vested interest? May be or may not be!

Actually politicians around the world have earned such a bad reputation so whenever they try to do something good for the common people, we started becoming skeptical! It's true that POS coins will get a huge boost if IRS finally decides to exclude the rewards from taxing, but trying to think through the motto of those congressmen!