Before the ruling, IRS had imposed taxation rules concerning only crypto-mining and not staking rewards.
Cryptocurrency enthusiasts in the United States have received a new mandate from the nation's chief taxation body.
The Internal Revenue Service (IRS) has decided that any income generated from cryptocurrency staking rewards must be reported as gross income in the fiscal year it was gained.
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On July 31st, the IRS cleared the air about the taxation of digital asset staking rewards on Revenue Ruling 2023-14. Regardless of the form in which income is received, money, property, services, or even crypto-staking rewards, it is considered gross income.
This ruling is aimed at cash-method taxpayers who earn crypto as compensation for validating transactions on proof-of-stake blockchains. The rule is applicable regardless if the staking process is performed directly or via a centralized crypto exchange.
The IRS elaborates that the annual income should reflect the fair market value of the crypto rewards at the point when the assets are received. The agency defines this moment as "dominion," or point of control of the staking bonuses, when the investor gains the ability to sell, trade, or dispose of the rewarded cryptocurrency.
The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards.
Before this, the IRS included crypto-mining rewards to income and capital gains tax. However, no specific provisions concerning staking rewards were issued until this new ruling.
This shift in the tax landscape has sparked comments from industry leaders. Ryan Selkis, founder of Messari, observed that the IRS treats crypto staking rewards similarly to stock dividends.
Jason Schwartz, the digital assets co-head and tax partner at Fried Frank, expressed disappointment:
While the ruling is therefore unsurprising, it’s still disappointing.
Schwartz pointed out that traditional tax law necessitates the presence of a payer, such as an employer or another party, for taxable income to accrue to an individual.
The recent IRS directive arrives amidst an environment where US federal regulators, such as the Securities and Exchange Commission, are focusing all of their interest on crypto-staking service providers and crypto exchanges, alleging these entities of unauthorized securities sales. This development presents yet another layer of complexity for cryptocurrency holders in navigating the emerging regulatory landscape.
It is worth noting that in July, Senators Ron Wyden and Mike Crapo of the US Senate Financial Services Committee issued an open letter to the crypto community asking for their insights about current crypto taxes.
