If a cash-method taxpayer stakes crypto native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, does that taxpayer include the value of the rewards in their gross income? And in which taxable year?
That's the question addressed in
The date and time when the taxpayer gains dominion and control over the rewards determines the fair market value.
The ruling also clarifies that this is also the case if a taxpayer stakes cryptocurrency through a crypto exchange and gets additional units of crypto as rewards as a result of the validation.
IRC Section 61(a) provides the general rule that, except as otherwise provided by Subtitle A of the Tax Code, gross income means all income from whatever source derived, the notice added. Under Sec. 61, "Instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" are included in gross income.
"Amounts received as gains derived from dealings in property, or as rents or royalties, also generally must be included in a cash-method taxpayer's gross income in the taxable year the taxpayer obtains dominion and control of those amounts through actual or constructive receipt," the notice added.
Rev. Ruling 2023-14 will be published in the Internal Revenue Bulletin 2023-33 on Aug. 14.
