Reporting for Staking Rewards

Reporting for Staking Rewards

Figment Networks now reports staking rewards to all of our Cosmos delegators. This will make tax reporting as simple as possible — a critical part of our transparent and compliant staking service.

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Cryptocurrency and the Taxpayer’s Obligations

If you participated in the latest tax season, you (or your accountant) may have noticed that the United States tax reporting guidelines for cryptocurrencies are uncertain at best. According to Brian Hamano, tax associate at Gibson, Dunn & Crutcher LLP, ‘Notice 2014–21, 2014–16 IRB 938’ is the only official publication that addresses cryptocurrencies, classifying them as property for federal income tax purposes.

Financial reporting and tax reporting require monthly income calculations. If earnings are taxed on an accrual basis (ie. ‘day earned,’ rather than ‘day withdrawn’), then unpaid earnings need to be reported as well. Miners on the Bitcoin network, for example, should report their mining rewards (BTC) as gross income 1) at fair market value and 2) on the date that they earned them. Bitcoin produces records of these mining rewards, but Cosmos does not.

Does not compute..

The Problem with Cosmos’ Staking Rewards

Since Tendermint, the blockchain software running Cosmos hubs and zones, doesn’t generate transactions for staking rewards (aka mining rewards) as they’re accrued and/or distributed, there is no way for a software application to request past account balances or past reward accruals. For tax reporting, that’s a problem.

Without a solution, we anticipate that Cosmos participants will face new hurdles while trying to comply with tax laws — a considerable burden for accounting teams. If staking rewards don’t exceed the overhead necessary to manage them, it will be a barrier to attracting off-chain capital (ie. new network investors). Figment Networks is addressing this problem.