I have written previously on this Blog and for Cointelegraph on the Jarrett v. Commissioner case filed on May 26 with a Tennessee Federal District Court (Case No. 3:21-cv-00419), whereby the taxpayers sought a refund of taxes they had paid in connection with their generation of Tezos digital tokens through their proof-of-stake activities. While the case is still pending, an interesting development occurred early in the case. In the Jarrett Complaint, he asserted — consistent with published IRS guidance — that all cryptocurrency is treated as “property” for federal tax purposes. In response to that assertion, the Department of Justice responded in the negative; that is, stating that to the extent a response is required, the United States denies that virtual currency is in all instance “property” for the purpose of U.S. tax law. This DOJ statement directly contradicts IRS Notice 2014-31 and the IRS FAQs currently posted on the IRS website, and raises a number of questions. It “may” suggest that virtual currencies can now be classified as something other than property or fiat currency and instead could fall into some third category, even foreign currency. Time will tell whether some third category is forthcoming from the government.
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