US Staking Rewards Tax: Ruling to Paschall

Yes. The IRS position, in Revenue Ruling 2023-14, is that a cash-method taxpayer who receives staking rewards includes their fair market value in gross income for the year in which the taxpayer gains dominion and control over them. On June 4, 2026, in Paschall v. Commissioner, T.C. Memo. 2026-46, the Tax Court reached the same result for a customer whose exchange staked his Cardano by default, and it did so under section 61 of the Internal Revenue Code without relying on the ruling.

What that does not settle is smaller than most summaries imply, and most of this page is about its edges. The ruling's facts describe one person validating blocks. The court's facts describe an exchange customer who never touched a validator, in a case decided on stipulated facts without expert testimony. A second lawsuit that attacks the ruling head-on was, as of the latest report found, still pending.

Eight dates that make up the record

The Notice 2014-21 description and the September 30, 2022 dismissal and Sixth Circuit citation come from the Tax Court's own opinion in Paschall, which cites the notice and footnotes the Jarrett history. The Jarrett filing years, the August 18, 2023 date and the second suit's filing details come from Bloomberg Tax and other secondary reporting and were not checked against court records.

The ruling's own example, read slowly

The issue the IRS framed is whether a taxpayer "must include the value of the rewards in the taxpayer's gross income and, if so, in which taxable year." Its facts are a single, small example. Taxpayer A, a cash-method taxpayer, "owns 300 units of M." A "stakes 200 of the units of M and validates a new block of transactions on the M blockchain, receiving 2 units of M as validation rewards." On a later date, the ruling says, "the following day, on Date 3, A has the ability to sell, exchange, or otherwise dispose of the 2 units of M."

From that the ruling draws the timing rule. A "has an accession to wealth as A gains dominion and control through A's ability, as of this date, to sell, exchange, or otherwise dispose." The fair market value "is determined as of the date and time the taxpayer gains dominion and control." The holding is that the fair market value of the validation rewards is included in gross income in the taxable year that includes that date, and the holding adds that "the same is true" if a taxpayer stakes through a cryptocurrency exchange.

Three limits are visible on the page. The taxpayer is a cash-method taxpayer, so the ruling says nothing about accrual-method taxpayers. The facts describe a taxpayer who validates a block, not one who delegates. And footnote 3 says the ruling "does not address issues that may arise under any rules not specifically cited, such as section 83." A revenue ruling is also the IRS's own statement of its position and does not bind a court. The Tax Court in Paschall said as much: "We are not bound by revenue rulings," and the weight it gives them depends on persuasiveness and the consistency of the IRS's position over time.

The ruling's example with prices attached

The ruling gives units and no prices. Here are some, invented for the example. Suppose the 2 units are worth 1,500 dollars each at the time A gains dominion and control. The inclusion is 3,000 dollars of ordinary income in that year. The IRS virtual currency FAQ says the income recognized is "the fair market value of the virtual currency, in U.S. dollars, when received" and that the basis in it is that same fair market value, so the units start with a basis of 3,000 dollars. The same FAQ says the holding period "begins the day after it is received." The FAQ states that it generally applies to transactions completed before January 1, 2025, and it does not mention staking by name, so it is cited here only for these general rules.

The third and fourth rows are the ones that surprise people. The tax on the reward is fixed by its value when received and does not shrink if the units fall in price afterward, and any loss on the later sale is a capital loss, which is a different kind of item from the income. This page does not apply rates, and nothing in the ruling or the FAQ ties the two together. The page on the United States crypto tax rules covers how capital losses are used, and the wash sale guide covers what limits harvesting them.

What the Tax Court decided, argument by argument

Alvie and Patricia Paschall had Cardano in an account at eToro USA. According to the opinion, eToro announced a Cardano staking service on October 1, 2020 and staked customers' tokens by default; customers could opt out and those who did received no rewards. Customers received 75 to 90 percent of the rewards, eToro kept the rest, and rewards arrived monthly as Cardano tokens that "were indistinguishable from the existing tokens in his account." Mr. Paschall never opted out. On November 23, 2021 eToro told him it would delist Cardano, and until the end of the year it restricted transfers of his tokens to other platforms, though he could still sell. eToro issued a Form 1099-MISC reporting 33,354 dollars of other income for 2021. The IRS determined a deficiency of 24,599 dollars and a 4,920 dollar accuracy-related penalty, and after concessions the only issue left was the 33,354 dollars of staking rewards.

The taxpayers made four arguments, and the court answered each.

The court's stated ground was general: gross income includes "all accessions to wealth" over which the taxpayer has dominion and control, and a cash-method taxpayer reports income in the year it is constructively received, which the regulations define as having it "credited to his account" so that it may be drawn "at any time." The opinion closes with "section 61 and related caselaw doom their position."

Three tests for the same moment

The authorities do not use identical words for when a reward becomes income, and the differences matter at the edges.

In the ruling's example the two tests probably give the same date. They diverge when a reward is credited and cannot yet be sold. Under the ruling the trigger is the ability to dispose of it. Under the regulation the question is whether the restriction is substantial. The court did not have to choose, because Mr. Paschall's tokens could be sold for cash throughout the year, and it treated the limit on moving them to other platforms as irrelevant for that reason. A reward that the protocol itself holds in a lock, so that no sale is possible, was not before the court.

Valuing every credit

The ruling fixes the amount at the fair market value "as of the date and time the taxpayer gains dominion and control." That is a per-credit measurement. A staker who is credited once a month, as Mr. Paschall was, has twelve valuations a year, and the opinion's single stipulated figure of 33,354 dollars implies an average of about 2,780 dollars a month, though the real credits and prices varied. A staker credited every day has 365 of them, and each needs a timestamp and a price from a stated source. The date and time wording also means that a credit at 11:30 p.m. on December 31 and one at 12:30 a.m. on January 1 fall in different tax years, even though they are an hour apart.

A short illustration shows how the credits add up. Suppose a staker is credited 100 units in March at 2.00 dollars, 100 in June at 3.00, 100 in September at 1.50 and 100 in December at 2.50. The income is 200 + 300 + 150 + 250 = 900 dollars, and the units carry bases of 200, 300, 150 and 250 dollars, an average of 2.25 dollars a unit. The year-end price of 2.50 dollars does not change the income, which was fixed credit by credit. A sale of 100 units for 2.50 dollars each is a gain of 50 dollars against the March credit's basis and a loss of 50 dollars against the June credit's, which is why the identification of which units were sold, covered in the basis guide, changes the result.

None of the sources read for this page prescribes a pricing source. The IRS FAQ speaks only of fair market value in U.S. dollars when received. A taxpayer in this position needs a record of when each reward was credited, how many units arrived, and the source and time of the dollar value used. The wallet-by-wallet basis guide explains why those same records also decide which units a later sale uses.

What Paschall leaves unsettled

The decision is a Tax Court memorandum opinion, designated T.C. Memo., and commentators describe such opinions as non-precedential. The case was submitted fully stipulated under Rule 122, and the taxpayers represented themselves. The court twice noted the missing expert testimony in footnotes, saying that it "hampers" its analysis of whether other platforms staked differently and that it "limits" its analysis of how Cardano's supply works. The petitioners also cited the Jarrett case, and in a footnote the court said the Jarrett court "never addressed the merits" and that the government's refund there "is not binding here."

A second Jarrett case, filed October 10, 2024 for tax year 2020, is described by Bloomberg Tax in a July 13, 2026 article as pending in the Middle District of Tennessee, with cross-motions for summary judgment before the court. The article says the government has contested the technical issue this time, and that the suit challenges Rev. Rul. 2023-14 directly, which Paschall did not need to decide. Secondary reporting ties the case to Tezos rewards received in 2020. No report of a ruling after that article was found.

Which situations any authority actually covers

The last row has a separate, narrow answer for one kind of vehicle. Rev. Proc. 2025-31, published in the bulletin dated November 24, 2025 (law-firm summaries date its release to November 10, 2025), "describes a safe harbor for trusts that otherwise qualify as investment trusts," and says that if its Section 6.02 requirements are met, a trust's authorization to stake and the resulting staking "do not prevent the trust from qualifying" as an investment trust, and the trust keeps grantor trust status. The page read for this article was cut off before the other conditions, effective date and amendment window, so those are not described here. Law-firm summaries describe the safe harbor as limited to certain single-asset, publicly traded trusts that distribute staking rewards at least quarterly, and they should be read against the text. It concerns the trust's classification and does not say what a holder of units pays.

What reaches the IRS, and where it goes on the return

The Paschall record shows the usual path. eToro issued a Form 1099-MISC for 2021 showing the rewards as other income, and the taxpayers did not receive it because it was mailed to a former address. They learned of it from an IRS Notice CP2000 dated November 13, 2023, which proposed adjustments, and a notice of deficiency followed on February 5, 2024. A 1099-DA is different: it reports sales, and IRS Notice 2024-57, discussed in the 1099-DA guide, relieves brokers from filing information returns for staking transactions until further guidance. So rewards can reach the IRS through a form such as a 1099-MISC, or through no form at all, and the taxpayer's duty to report does not depend on which.

The IRS digital assets page asks the question the same way on Form 1040: "At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset." It says "to report income from forks, staking, mining, etc., use Form 1040 (Schedule 1)," and it sends payments received as an independent contractor to Schedule C. The page was last reviewed September 2, 2026. Whether running staking infrastructure at scale is a business, with self-employment tax consequences, is a different question that none of the authorities above answers, and it is one for a preparer.

Reading Paschall's numbers

The opinion's figures can be checked against each other. The account received rewards stipulated at 33,354 dollars for 2021, and the IRS determined a deficiency of 24,599 dollars with an accuracy-related penalty of 4,920 dollars. The penalty is 20.0 percent of the deficiency (4,920 divided by 24,599 is 0.2000), the rate that section 6662(a), which the opinion cites, applies to an accuracy-related penalty. The deficiency is 73.8 percent of the stipulated income, but the opinion does not say what produced the deficiency, and it was determined before concessions, so the ratio should not be read as a tax rate. The record also shows how long the process took and how the reward was found: a third party issued a Form 1099-MISC for it. The staking year was 2021, the CP2000 notice is dated November 13, 2023, the notice of deficiency February 5, 2024 and the Tax Court decision June 4, 2026.

What would change the picture

Three things would. A decision in the second Jarrett case that rejects the IRS's timing rule, in a court bound by precedent rather than in a stipulated memorandum, would be the first real test of the ruling's reasoning. A published IRS statement on liquid staking tokens or locked rewards would fill rows of the table above that are empty today. And any change to the statute would override everything on this page. Until then, the position the IRS states and the one the Tax Court applied on its facts point the same direction: a reward is income when it is credited and can be sold, at its value then.

Frequently Asked Questions

Are staking rewards taxable in the US?

Under the IRS's Revenue Ruling 2023-14, yes: the fair market value of validation rewards is included in gross income in the year the taxpayer gains dominion and control over them. The Tax Court agreed on the facts of Paschall v. Commissioner (June 4, 2026), without relying on the ruling. Both statements are about the cases and facts described above.

When is a staking reward taxed, when it is credited or when I sell it?

When it is credited and you can sell it, at its value then. Selling later is a second event, with its own gain or loss measured from that value as your basis. The ruling's example treats the reward as income on the day the taxpayer can dispose of it, and the Paschall court treated monthly credits to an exchange account as income when received.

Does staking through an exchange change the answer?

Not under the ruling's holding, which says the same is true for staking through an exchange, and not in Paschall, which involved an exchange that staked by default. If you opted into staking or never opted out, the court treated the credited tokens as income.

Are liquid staking tokens or locked rewards treated differently?

Nothing read for this page says. The ruling, the Tax Court opinion and the IRS page do not address liquid staking tokens or rewards a protocol keeps locked. This is a real gap, and a tax professional familiar with the specific protocol is the right person to ask.

Do I owe tax if I never sell the tokens?

The sources on this page say the tax on the reward arises on receipt, not on sale. Paschall did not sell his rewards in 2021 and still owed tax on them. Whether you owe any additional tax depends on a later sale.

Is Paschall v. Commissioner binding law?

It is a Tax Court memorandum opinion, which commentators call non-precedential, decided on stipulated facts with the taxpayers representing themselves. The court noted the limits of its record. It is a strong signal for similar custodial facts and not a final answer on every staking arrangement.

Where do I report staking income?

The IRS says to use Form 1040, Schedule 1, for income from forks, staking and mining, and Schedule C for payments received as an independent contractor. Answer the digital assets question on the front of Form 1040 truthfully. A tax professional can say whether your activity is a business.

Sources

CryptosEyes publishes general educational research, not investment, legal, or tax advice. This article summarizes published IRS guidance and one court decision as of the dates stated and does not apply them to any person's facts. Tax outcomes depend on individual circumstances; consult a qualified tax professional before filing.