IRS Claims Crypto Staking Rewards are Taxable

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The Internal Revenue Service (IRS) is reported to announce that US crypto shareholders have to declare crypto staking awards as gross income in the year in which it is earned.

IRS Eyes Crypto Staking Rewards

On July 31, the IRS provided guidance regarding how revenue derived from staking digital assets would need to be taxed. The real market value of cryptocurrency incentives should be accounted for in annual income to be assessed when the assets are acquired. Furthermore, it stated that gross income comprises all forms of revenue, including cash, real estate, services, and now staking incentives. 

Staking via CEXs also Included

This is applicable to cash-method taxpayers who get any form of cryptocurrency as compensation for certifying events on proof-of-stake blockchains, and it covers equally the staking cryptocurrency and when staking via a centralized crypto exchange.

The ruling reads: “The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards.”

Crypto Space Reacts

As the decision is disclosed, there are a number of reactions as well. Danny Talwar, Head of tax at Koinly said: “The revenue ruling compounds the understanding of many accounting professionals in that staking rewards are only taxed as gross income when they are able to be sold. This means that rewards accrued but locked won’t be taxable until the recipient can exercise ‘dominion and control’ over their staking rewards.”

Tax partner and digital assets co-head at Fried Frank, Jason Schwartz noted: “While the ruling is therefore unsurprising, it’s still disappointing.”

IRS is Treating Crypto Staking Rewards as Dividends

According to Messari founder Ryan Selkis, the IRS treats crypto stakes as dividends on stocks. Meanwhile, the tax authority made an effort to change the laws for digital assets prior to the start of FY23. 

Likewise, Chief Jim Lee of the IRS’s Criminal Investigation Division (IRS-CI) announced the fact that the IRS is amassing numerous crypto cases that are going to be made accessible shortly after it enters the fiscal year 2023 (FY23) when recounting its actions of the fiscal year 2022 (FY22), which began in October 2021 and ended in September 2022.

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