According to a ruling issued Monday, the Internal Revenue Service (IRS) said U.S. cryptocurrency investors who earn rewards from staking services need to include the value of those rewards as part of their gross income.
On July 31, the Internal Revenue Service (IRS) issued Revenue Ruling 2023-14, clarifying how income earned from staking digital assets should be treated for taxation purposes.
The IRS said in a ruling that if a taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives rewards, “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.”
Proof-of-stake is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain.
The ruling stated that the fair market value of the crypto rewards should be included in annual income and determined when the assets are received.
The rule also holds true for investors staking tokens through a crypto exchange, according to the agency, if “the taxpayer receives additional units of cryptocurrency as rewards as a result of the validation.”
The IRS legal guidance comes as other federal and state regulators, especially the U.S. Securities and Exchange Commission (SEC) have gone after staking services from crypto exchanges as illegally offered securities.
The SEC alleged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.
Also Read: Court Orders Kraken to Hand User Data Over to The IRS
