What Happened?

A federal Tax Court ruled that cryptocurrency staking rewards count as taxable income the moment you receive them, not when you sell them. The case, *Paschall v. Commissioner*, centered on a taxpayer who earned $33,354 in Cardano tokens through the eToro platform in 2021. The IRS assessed a $24,599 tax deficiency and a $4,920 accuracy-related penalty. [](#ngr-98a4d666-de87-4ac5-b1ad-07a688646482)

The IRS has ruled that validation rewards from staking are includible in gross income when a taxpayer has dominion and control over them, valued at fair market value on that date. You can think of it like earning interest in a savings account, except instead of dollars, you receive digital tokens. The IRS has treated virtual currency as property, not currency, since 2014, meaning general property tax rules apply to digital assets.

Why Does it Matter to Me?

If your employer paid you in stock instead of cash, you'd still owe taxes on it right away, based on what it was worth that day. The court found the same logic applies to staking rewards, ruling that a token holder's share of outstanding tokens increased upon receipt, making those rewards taxable income at their fair market value on that date.

That matters because crypto prices swing wildly. You could owe taxes on tokens worth $1,000 today that are worth $200 by the time you file your return.

The same rules apply to cryptocurrency mining. Miners must include the fair market value of newly mined coins in gross income on the date of receipt, and if mining is a trade or business, net earnings also face self-employment taxes.

Under Revenue Ruling 2019-24, if you receive new tokens through an airdrop following a hard fork and can immediately dispose of them, those tokens count as taxable income at their fair market value on the date you receive them.

Both Sides, Now

In *Jarrett v. United States*, a dispute over the 2020 tax year, cross-motions for summary judgment were pending as of August 3. So the legal picture is not fully settled yet.

Congress is also weighing in. The Tax Clarity for Mining and Staking Act would allow taxpayers to delay reporting income from mining and staking until they actually sell their tokens. Supporters say that approach is fairer, since you haven't converted your tokens to cash yet. A White House working group has suggested the Treasury Department issue guidance on de minimis treatment of digital assets received through airdrops, staking, hard forks, and mining.

What Happens Next?

The Digital Asset Tax Certainty Act, known as H.R. 10357, was ordered out of the House Committee on Ways and Means on September 16. That moves it one step closer to a full House vote, though no date has been set. The Charitable Deductions for Digital Asset Donations Act would exempt widely traded digital assets from qualified appraisal requirements for charitable contributions.

For now, if you earn cryptocurrency through staking or mining, the current law, as upheld by the Tax Court, requires you to report it as income right away.

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This article was generated by AI pulling from data. Each article is edited by an editor for accuracy and clarity.

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