US tax on staking rewards: Rev. Rul. 2023-14 and the dominion test

The IRS taxes staking rewards as income when you can first sell them, and the Tax Court has now agreed. Here is what that means for your records.

2026-10-16 · 6 min read

What this means for you: under current IRS guidance, staking rewards are ordinary income in the year you first gain the ability to sell or move them. They are measured at fair market value at that moment, and that value becomes their tax basis. The practical burden is timestamps and prices for every reward, not just a year-end total [1][4].

What Rev. Rul. 2023-14 says

Revenue Ruling 2023-14 addresses a cash-method taxpayer who stakes a proof-of-stake network's native token and receives new units as validation rewards. In the ruling's example, the protocol locks the reward for a short period. The IRS concludes that income arises when the taxpayer can sell, exchange or otherwise dispose of the reward units, not when they are first credited [1].

The amount included is the fair market value at the date and time that control begins. The ruling says the same result applies when the taxpayer stakes through a cryptocurrency exchange rather than directly [1].

The ruling is narrow in places that matter to finance teams. It is framed for cash-method taxpayers. A footnote says the facts do not address gas or other transaction fees. Another says it does not address rules it does not cite, naming section 83 as an example [1]. An accrual-method company should not assume the ruling settles its timing. Confirm the position with your tax adviser.

Basis and holding period

Once a reward is taxed as income, the income amount becomes its basis. The IRS virtual currency FAQs say basis for crypto received as income is its US dollar fair market value when received. They also say the holding period starts the day after receipt [4].

The litigation: Jarrett and Paschall

Joshua and Jessica Jarrett argued that tokens produced by Tezos staking are newly created property, taxable only when sold. They paid tax on 2019 rewards and sued for a refund. The government then refunded the tax plus interest. In August 2023 the Sixth Circuit held the case moot because the refund gave the Jarretts everything a refund suit can deliver. The court did not decide whether staking rewards are income on receipt [3].

The Jarretts filed a second refund suit in October 2024, in the Middle District of Tennessee, covering their 2020 tax year [5]. We could not confirm the current status of that case as of October 2026.

The first court decision on the merits came from the US Tax Court in June 2026. In Paschall v. Commissioner, T.C. Memo. 2026-46, a couple held Cardano tokens on a custodial platform that staked them by default. Rewards were credited monthly and could be sold at any time. The court held the rewards were gross income on receipt for 2021 [2].

The court rejected two arguments. One compared the rewards to a non-taxable pro rata stock dividend; the court said the rewards increased the holders' share of tokens in circulation. The other treated rewards as self-created property, like a baker's cake, but the holders had not created the tokens themselves. A restriction on transferring tokens off the platform did not defeat control, because the holders could still sell them [2].

Two limits apply. The court expressly did not rely on Rev. Rul. 2023-14, resting instead on section 61 and existing case law. It also noted that Jarrett never reached the merits [2]. A memorandum opinion on stipulated facts, with pro se petitioners and no expert testimony, carries less precedential weight than a reported opinion or an appellate ruling.

Open questions, including liquid staking

• Liquid staking and restaking: the ruling covers new units of a native token received as validation rewards [1]. It does not address receipt tokens that rebase or rise in value, or rewards paid in other tokens. We found no IRS guidance specific to these structures, so treat them as a policy question for your adviser.
• Lock-ups and unbonding: the ruling ties timing to when units can be disposed of [1]. Your records need to show when each reward actually became transferable or sellable, not only when it appeared on chain.
• Validator commissions and fees: in Paschall the platform kept 10 to 25 percent of rewards as its fee [2]. Whether you record income gross or net of such fees depends on the facts and your adviser's view. The ruling does not address it.
• Information returns: brokers are told not to report rewards and staking payments on Form 1099-DA [6]. In Paschall the platform used a Form 1099-MISC [2]. Do not rely on receiving any form; the reporting obligation sits with you.

Records to keep

The IRS FAQs require records of receipts, sales, exchanges and other dispositions of virtual currency, including fair market value [4]. For staking, that means a per-reward record of:

• Wallet or account, validator or pool, and network
• Quantity received and the transaction or reward identifier
• The date and time control began, with evidence of any lock-up
• The price source and timestamp used for fair market value
• Any fee or commission withheld
• The resulting lot, its basis and holding-period start date

What to do

• Recognize staking rewards as income when control begins, at fair market value at that time, unless your adviser documents a different position [1][2].
• Carry that income amount forward as each reward lot's basis so later sales are not taxed twice [4].
• If you use the accrual method, or stake through liquid staking or restaking protocols, get a written position from your tax adviser; current guidance does not squarely cover you.
• Store a timestamped price for every reward, plus evidence of when lock-ups ended.
• Reconcile reward income to wallet balances each period instead of waiting for a broker form that may never arrive [6].

This article is general information, not tax advice. Treatment depends on your facts and elections.

Sources

1. Rev. Rul. 2023-14 (26 CFR 1.61-1: Gross income) (Internal Revenue Service)
2. Paschall v. Commissioner, T.C. Memo. 2026-46 (United States Tax Court (copy hosted by IRS))
3. Jarrett v. United States, No. 22-6023 (6th Cir. Aug. 18, 2023) (US Court of Appeals for the Sixth Circuit)
4. Frequently asked questions on virtual currency transactions (Internal Revenue Service)
5. Taxpayer Files New Lawsuit on Crypto Staking Tax Treatment (McDermott Will & Emery)
6. 2025 Instructions for Form 1099-DA (Internal Revenue Service)

General information for finance teams, current as of publication. Not legal, tax or accounting advice.

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