Let’s say you really want the IRS to change how it treats an issue that impacts you. So you file a tax return including that item (as the IRS wants it done), adding $9400 of income and $2000 to your tax. Then you file an amended return (a “Claim for Refund”) removing the item. The IRS doesn’t timely process the return/refund (which is typical), so you file a claim in District Court. The IRS then issues the refund, but you don’t cash the check because you want this dispute to be heard in court. Is the matter moot?
That’s what was heard in the US District Court for the Middle District of Tennessee in the case of Jarrett v. United States. I wrote about the case earlier this year, and noted that it was quite likely the Jarretts wouldn’t like the result. And that’s what happened last month when Judge William L Campbell, Jr. dismissed the lawsuit.
The problem for the Jarretts is simple: Once the IRS refunds the money, what are you arguing? You asked for a refund and received it! That you would like the court to decide is nice, but, “The Court does not provide advisory opinions.” So the Jarretts are out the money to hire attorneys, and we (taxpayers and tax professionals) don’t know with certainty how staking should be taxed.
It’s not as if the Court didn’t recognize the problem here:
Plaintiffs also argue that a decision on whether Tezos tokens created through “staking” are taxable income is of significant public importance because there are other taxpayers who engage in the same activity. The Court is not persuaded that the existence of an unanswered tax question, which is unquestionably of interest to the group of taxpayers who create Tezos tokens, provides an exception to mootness in this case…The Supreme Court has long recognized the problems presented by Congress’ decision to require taxpayers to challenge adverse tax decisions on a backward-looking basis, i.e. after taxes have been paid or assessed.
Unfortunately, the issue is moot for the 2019 tax year (the year in question) but not for 2020, 2021, or 2022:
The Court finds no reasonable expectation that Plaintiffs will be subject to the same action again. As stated above, the instant controversy was limited to whether Plaintiffs were entitled to a refund of taxes paid for the 2019 tax year. This particular issue is not capable of repetition as any subsequent claim for refund would necessarily apply to a different tax year (“The tax amounts in dispute and the nature of the claim for a refund are specific to each individual tax year.” Moreover, as this is the Jarretts’ first suit to seek a refund after paying income tax on Tezos tokens, it is premature to speculate the Jarretts’ tax refund claims will repeatedly evade review. [citation omitted]
Eventually, there are likely to be one or more court cases that are precedential impacting cryptocurrency (which would be a good thing), but this is not going to be such a case: “Plaintiffs’ claim for relief is MOOT.”
Tags: Jarrett v United States