Key Points
- IRS ruling declares crypto staking rewards as taxable income for U.S. investors.
- Gross income includes staking rewards in money, property, or services received.
- Fair market value of staking rewards should be included in annual income upon receipt.
The IRS has clarified that crypto staking rewards must be reported as gross income by U.S. investors. Learn how this new ruling impacts stakers.
Understanding the IRS Ruling
On July 31, the IRS issued Revenue Ruling 2023-14, specifying that crypto staking rewards are to be treated as gross income in the year they are received. This applies to cash-method taxpayers who receive crypto as remuneration for validating transactions on proof-of-stake blockchains, both directly and through centralized exchanges.
Valuing and Reporting Staking Rewards
According to the ruling, stakers should include the fair market value of the crypto rewards in their annual income. The valuation is based on the assets’ worth at the time they are received. The term “dominion” was defined as the point when the investor gains control over the crypto rewards, allowing them to sell or exchange them.
What PoS blockchains do at scale is embed state-level taxes into their protocols.
The IRS says PoS rewards should be included in gross income, which means crypto has taken the concept of a “stock dividend” and made it taxable.
You get a taxed for slicing a pizza in 10 vs. 8. pic.twitter.com/3qlm6lAGQv
— Ryan Selkis 🪳 (@twobitidiot) July 31, 2023
Comparison to Stock Dividends
The IRS is likening crypto staking to stock dividends, aligning it with existing tax treatments. Experts say this ruling was expected, but it brings clarity to the tax treatment of staking rewards, even though some find it disappointing due to the lack of a clear payer for taxable income.
Regulatory Landscape
The IRS’s tax bulletin arrives amid increased scrutiny of crypto-staking service providers and exchanges by federal regulators. The Securities and Exchange Commission (SEC) has been targeting such entities, alleging illegal securities sales.
In conclusion, the IRS ruling clarifies that crypto staking rewards are taxable as gross income, impacting U.S. investors who receive such rewards. As the regulatory landscape evolves, it becomes essential for investors and crypto enthusiasts to stay informed and compliant with the changing tax rules in the crypto space.
