UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

┐ JOSHUA JARRETT; JESSICA JARRETT, │ Plaintiffs-Appellants, │ > No. 22-6023 │ v. │ │ UNITED STATES OF AMERICA, │ Defendant-Appellee. │ ┘

Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 3:21-cv-00419—William Lynn Campbell, Jr., District Judge.

Argued: July 26, 2023

Decided and Filed: August 18, 2023

Before: SUTTON, Chief Judge; DAVIS and MATHIS, Circuit Judges.

_________________

COUNSEL ARGUED: Cameron T. Norris, CONSOVOY MCCARTHY PLLC, Arlington, Virginia, for Appellants. Ivan C. Dale, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Cameron T. Norris, Jeffrey M. Harris, CONSOVOY MCCARTHY PLLC, Arlington, Virginia, for Appellants. Ivan C. Dale, Jennifer M. Rubin, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. Audrey Patten, THE LEGAL SERVICES CENTER OF HARVARD LAW SCHOOL, Jamaica Plain, Massachusetts, for Amicus Curiae. _________________

OPINION _________________

SUTTON, Chief Judge. Claiming that he overpaid his 2019 taxes, Joshua Jarrett sued the Internal Revenue Service for a refund. The IRS responded by issuing a full refund check. Jarrett No. 22-6023 Jarrett, et al. v. United States Page 2

refused to cash it. Even so, the district court reasoned that Jarrett had received his due and dismissed the case as moot. We agree and affirm.

I.

Jarrett produces Tezos tokens, a form of cryptocurrency, through a process known as “staking.” R.61 ¶ 4. As Jarrett sees it, staking uses existing Tezos tokens and computing power to produce new tokens. If that’s so, he owes tax on the tokens only when he sells or transfers them. Only at that point would he “realize” income for tax purposes. See 26 U.S.C. § 61(a); Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955); 1 Mertens Law of Fed. Income Tax’n §§ 5:1, 5:5, 20:3 (2023).

The Internal Revenue Service views the process differently. Staking, it says, involves an exchange of goods and services, just like payments, wages, compensation, and other sources of income. See Rev. Rul. 2023-14 (July 31, 2023), https://tinyurl.com/ysc9776k (explaining the IRS’s view that staking produces “rewards” that increase gross income when the taxpayer receives them); Updates to Questions on Digital Assets, IRS.gov (Jan. 24, 2023), https://tinyurl.com/jayejenp (categorizing receipt of “new digital assets resulting from mining, staking and similar activities” as a taxable transaction). If that’s so, Jarrett realizes income when he receives each token and owes tax on the income that year. See 26 U.S.C. § 61; Glenshaw Glass Co., 348 U.S. at 431; 1 Mertens Law of Fed. Income Tax’n §§ 5.15, 20.3.

Timing can be everything when it comes to income taxes. Normally delay in realization, as in delay in death, benefits the taxpayer. Other times, value fluctuates, making Jarrett’s tax bill turn on the value of a Tezos token at the time he realizes income. See 1