Staking income in the courts: Paschall decided, Jarrett still unresolved
The Tax Court held in June 2026 that staking rewards are income on receipt. The second Jarrett refund suit has no public ruling we can find.
Since our explainer on Rev. Rul. 2023-14, a court has ruled on the merits for the first time. On 4 June 2026 the US Tax Court decided Paschall v. Commissioner, holding that staking rewards were gross income when they were credited to the taxpayer's account [1]. The second Jarrett refund suit in Tennessee, which raises the opposite argument, has no public decision that we could find as of 16 October 2026.
For finance teams, the practical position is unchanged and now slightly firmer: treat rewards as ordinary income at fair value when you gain control of them, and keep the records needed to support that value and timing.
What Paschall decided
The case concerned a couple's 2021 return. Cardano held on a trading platform was staked by default, and the rewards, stipulated at $33,354, were not reported [1]. The court held the rewards were taxable in the year received under section 61 and related case law, rejecting arguments that they were like a stock dividend or like self-created property such as a baker's cake [1]. On the self-creation point, the court said the stakers did not create the tokens themselves; the protocol granted them in return for validation [1].
Two limits matter. First, the court said it did not rely on Rev. Rul. 2023-14, and the IRS also said it was not directly relying on it; the result rests on the general definition of gross income [1]. That is broadly consistent with the ruling's own holding that rewards are income when the taxpayer gains dominion and control [2]. Second, this is a memorandum opinion in a fully stipulated case with taxpayers representing themselves, and the court noted several times that the lack of expert testimony limited its analysis [1]. Commentators have stressed that its weight as precedent is limited [5][6].
The opinion closes with a decision to be entered under Rule 155, meaning the tax figures are recomputed before a final decision [1]. We found no public record of an appeal as of 16 October 2026; that is not proof none was filed.
Where Jarrett stands
The first Jarrett case, for the 2019 tax year, never reached the merits. The government refunded the tax and the Sixth Circuit agreed the case was moot [3]. In October 2024 the Jarretts filed a new refund suit for 2020 in the Middle District of Tennessee, docket 3:24-cv-01209, arguing that tokens created through staking are new property taxed only when sold [4].
A June 2026 EY alert reported the case was pending with trial set for 29 September 2026, and noted that unlike Paschall it involves a taxpayer running his own Tezos validation (baking) rather than staking through a platform [5]. We could not confirm whether that trial went ahead, or whether any ruling or settlement has followed. If a district court does rule for the Jarretts, it would bind only that case and would sit alongside, not displace, Paschall and the IRS's published position.
What it means for finance teams
Both the IRS guidance and the only merits decision so far point to the same treatment: income at fair value when rewards are under your control [1][2]. The open arguments are narrower than they look. Paschall dealt with custodial staking on a stipulated record; self-run validation, liquid staking and restaking were not before the court, and the IRS has not issued specific guidance on them as far as we know. Where your facts differ, take advice rather than assume either outcome.
What to do
- Keep recognising staking rewards as income at fair value at the time you gain control, consistent with Rev. Rul. 2023-14.
- Record for each reward the time credited, quantity, price source and when it became transferable, so both value and timing can be defended.
- If you have taken or are considering a different filing position, discuss with your tax adviser how Paschall affects penalty and disclosure risk.
- Separate custodial, self-run, liquid staking and restaking activity in your records, since any future ruling may turn on those facts.
- Watch the Jarrett docket (M.D. Tenn. 3:24-cv-01209) for a ruling, and the Tax Court for any appeal of Paschall.
Sources
- Paschall v. Commissioner, T.C. Memo. 2026-46 (US Tax Court (via IRS))
- Rev. Rul. 2023-14 (IRS)
- Jarrett v. United States, No. 22-6023 (6th Cir. 2023) (US Court of Appeals for the Sixth Circuit)
- Jarrett 2.0: Taxpayer Files New Lawsuit on Crypto Staking Tax Treatment (McDermott Will & Schulte)
- Tax Court confirms staking rewards are taxable upon receipt (EY Tax News)
- Paschall: Tax Court Memorandum Holds that Staking Rewards are Taxable Income in Pro Se Case on Erroneous Stipulated Facts (Fenwick)
General information for finance teams, current as of publication. Not legal, tax or accounting advice.