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According to claims made before a federal court, mined digital money should not be taxed by the IRS because it constitutes the production of property.

The court heard from a Tennessee couple charged with paying taxes on the production of 8,876 units of Tezos, a digital currency.

The IRS reported the transaction as other income, which resulted in a $9,407 tax bill. However, the pair then claimed for a refund, implying that the creation of digital money is a creative endeavor, similar to a baker producing a cake, rather than taxable revenue.

The Jarretts claimed in their case that the IRS was undertaking an unprecedented step by demanding tax on asset development rather than income.

“The United States here seeks to use the federal income tax law to do something unprecedented, which is tax creative activity rather than income. Taxing newly created cakes, books or tokens as income would have far-reaching and detrimental effects on taxpayers and the U.S. economy, and is without support in the Internal Revenue Code, regulations, case law or the Constitution.”

The couple referenced Eisner v. Macomber, a 1920 Supreme Court case that stated that income must involve a “coming in” rather than a “production.”

Similarly, they maintained that income is instances of incontrovertible accessions to wealth, plainly realized, and over which taxpayers have total control, as made by the Supreme Court in Commissioner v. Glenshaw Glass in 1955. However, there had been no ‘realization’ that could be classified as taxable in their circumstances.

The Jarretts are requesting a refund of $3293 in taxes paid, as well as a $500 increase in tax credits, which the IRS has yet to react to.

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