Crypto staking rewards are taxable when received according to Tax Court
Alvie N. Paschall v. Commissioner. United States Tax Court. No. 7382-24. T.C. Memo 2026.
Taxpayers should remember that when they receive cryptocurrency staking rewards, they need to include them as income once they gain control of the tokens, even if they haven't sold them yet.
Holding
The Tax Court ruled that $33,354 in Cardano staking rewards, earned via a proof-of-stake cryptocurrency platform, were taxable income in 2021 when the taxpayer obtained dominion and control over the tokens. The Court supported the IRS’s stance that these rewards should be included in gross income at the time of receipt.
Why It Matters
This is the first Tax Court opinion directly addressing the taxation of proof-of-stake staking rewards.
The decision strongly supports the IRS position that staking rewards are taxable upon receipt rather than only upon sale.
The Court reached its conclusion under longstanding §61 income principles, not by relying on IRS administrative guidance.
Taxpayers advancing “new property” or “self-created property” theories now face unfavorable judicial precedent.
The ruling is especially important for retail investors using custodial staking platforms such as eToro, Coinbase, Kraken, and similar services.
Key Facts
Alvie Paschall held Cardano cryptocurrency through the eToro platform.
eToro automatically staked customers’ Cardano holdings unless customers opted out.
Staking rewards were distributed monthly in additional Cardano tokens.
Paschall remained enrolled in the staking program throughout 2021 and never opted out.
He received staking rewards valued at $33,354 during the year.
eToro issued Form 1099-MISC reporting the rewards as other income.
The taxpayers did not report the staking rewards on their return.
Statutory Framework
§61 defines gross income broadly as “all income from whatever source derived.”
Cash-method taxpayers generally recognize income when actually or constructively received.
Property received as compensation or rewards is generally taxable when the taxpayer obtains dominion and control over it.
The IRS has previously stated in Notice 2014-21 that cryptocurrency is treated as property for federal tax purposes.
Revenue Ruling 2023-14 similarly concluded that proof-of-stake validation rewards are taxable when the taxpayer gains dominion and control over them.
Taxpayer Arguments
Taxpayer argued:
Staking rewards should not be taxable until sold or otherwise disposed of.
The rewards were analogous to nontaxable stock dividends under Eisner v. Macomber.
The rewards represented self-created property similar to products created by a baker or author.
eToro’s transfer restrictions prevented full dominion and control.
Revenue Ruling 2023-14 could not support taxation of rewards received before the ruling was issued.
Government Arguments
Government argued:
The taxpayer received additional cryptocurrency with measurable fair market value.
The taxpayer had dominion and control because the tokens could be sold at any time.
The staking rewards constituted an accession to wealth under established income tax principles.
The rewards were taxable upon receipt regardless of whether they were later sold.
Court’s Reasoning
Cryptocurrency is property for federal income tax purposes.
Gross income includes undeniable accessions to wealth over which a taxpayer has complete dominion and control.
The staking rewards were credited directly to Paschall’s account and were immediately available for sale.
Restrictions on transferring tokens to another wallet did not matter because Paschall retained the ability to convert the tokens to cash at any time.
The rewards were not analogous to stock dividends because they increased both the taxpayer’s holdings and the value of his position.
Staking rewards were not self-created property because the blockchain protocol, not the taxpayer, generated the additional tokens.
The Court did not rely on Revenue Ruling 2023-14 and instead grounded its decision in §61 and longstanding income tax principles.
Result
The Tax Court determined that the taxpayer's taxable income from cryptocurrency staking rewards for 2021 was $33,354, dismissing the taxpayer’s claim that taxes should be postponed until sale.
The Takeaway
This is the most significant judicial endorsement of the IRS’s staking-reward position. The case's importance isn't just in the taxpayer losing. The Court used a broad income-recognition analysis, based on traditional tax doctrine, and ruled that staking rewards are taxable when the taxpayer can freely use or sell them.
Tax practitioners should note that the Court did not rely on Revenue Ruling 2023-14. Even if taxpayers question the authority of IRS guidance after Loper Bright, this decision suggests that courts might still reach the same conclusion under established §61 principles.
List of Citations
IRC §61 – Defines gross income broadly and served as the primary basis for the decision.
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955) – Defines taxable income as an accession to wealth under the taxpayer’s dominion and control.
Corliss v. Bowers, 281 U.S. 376 (1930) – Income subject to a taxpayer’s unfettered command may be taxed.
Helvering v. Horst, 311 U.S. 112 (1940) – Power to dispose of income is equivalent to ownership.
Eisner v. Macomber, 252 U.S. 189 (1920) – Distinguished by the Court because staking rewards increased the taxpayer’s economic interest.
Revenue Ruling 2023-14 – IRS guidance concluding that proof-of-stake rewards are taxable upon receipt, although the Court expressly stated it did not rely on the ruling.
Notice 2014-21 – IRS guidance treating cryptocurrency as property for federal tax purposes.