Digital Asset Investors Should Report Crypto Staking Rewards as Taxable Income: IRS

Sujha Sundararajan
Last updated: | 2 min read
Source: Pexels / Mark Youso

The US Internal Revenue Service (IRS) has outlined the latest tax guidance that classifies earnings from crypto staking as taxable income.

Per the Revenue Ruling of 2023-14, issued Monday by the IRS, crypto investors must report rewards earned from staking digital assets as gross income, in the same year it was received.

The document says that gross income includes income realized in any form, whether in money, property, services and currently staking reward.

The IRS legal analysis noted that the ruling applies to cash-method taxpayer who stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs.

“The fair market value of the validation rewards received is included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards.”

Additionally, IRS said that a taxpayer who receives cryptocurrency as a payment for goods or services or who mines cryptocurrency must include the fair market value of the crypto in the gross income, the same year the taxpayer obtains the control of the cryptocurrency.

The ruling, however, did not clarify tax filings for those staking on multiple networks, thus complicating matters for such crypto investors.

Increased Scrutiny Over Crypto Staking Service

IRS, the US federal tax body, has been frequently reviewing the crypto asset class in the recent past.

In May, it announced plans to deploy experts to four cities – Sydney, Bogota, Frankfurt and Singapore – to combat cybercrime, with a particular focus on tax and financial crimes that use cryptocurrency.

The IRS’ Criminal Investigation arm seized “record amounts of data and cryptocurrency,” an annual 2022 fiscal year report noted. In addition, IRS was also involved in the “largest single financial seizure in government history,” where the Department of Justice arrested the accused over laundering crypto that was stolen during a 2016 hack of crypto exchange Bitfinex.

The IRS’s ruling comes at a time when the US Securities and Exchange Commission (SEC) targeted certain staking services provided by crypto exchanges in the U.S.

In February, the IRS filed a court petition, soon after the crypto exchange Kraken reached a settlement with the US SEC over allegations of securities law violations with respect to its staking service.

Last month, the US District Court for the Northern District of California issued an order stating that Kraken must provide account and transaction details to the IRS to examine whether any crypto users have underreported taxes.

Kraken is required to disclose information about users who engaged in transactions exceeding $20,000 within a calendar year, the court order said.