Crypto Staking Deemed a Taxable Event Under New IRS Writ

Crypto staking rewards are now taxable in the United States, according to an IRS ruling. The agency classifies these rewards as gross income, and stakers will have to pay taxes accordingly.

The IRS issued the Revenue Ruling of 2023-14, confirming that staking rewards are taxable when the staker has dominion and controls them.

IRS: Staking Rewards a Taxable Event

The document published by the IRS asks the question of whether the idea of receiving crypto rewards for validation or other such activities should incur taxation.

After providing definitions for various aspects of blockchain technology, it cites specific laws and concludes that staking rewards are, in fact, taxable, stating,

“If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, the fair market value of the validation rewards received is included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards.”

The ruling will complicate matters for cryptocurrency users, as staking is a key part of portfolios. Furthermore, a user will often stake on multiple networks, further complicating the tax filings.

Consensys Backed Lawsuit Challenging IRS’ Views

The IRS has frequently been in the headlines for its review of the crypto asset class. Earlier in the year, Consensys backed a lawsuit against the IRS over taxing staked crypto. The lawsuit saw a couple from Tennessee suing the IRS to recover federal income taxes.

Staking is appearing to be a major point of contention for lawmakers. With more regulatory clarity and laws coming into place, there may be more lawsuits on the horizon.

The IRS is doing far more than just asking for tax dues on earnings related to staking. A judge ordered the Kraken crypto exchange to turn over information about users to the IRS. The agency asked for information on users that executed at least $20,000 worth of cryptocurrency trading.

Kraken has called this request an “unjustified treasure hunt” and has argued against it. It bid to block the crypto tax probe but failed to do so. Kraken is also planning to launch its own bank, according to reports published in March 2023.