The US tax regulator, the Internal Revenue Service (IRS), has restated its stance on cryptocurrency staking, clarifying that rewards generated from staking activities are taxable as soon as they are received. The IRS added that staking rewards do not constitute new property, and are therefore subject to immediate taxation upon generation.

IRS Confirms Crypto Staking Taxable On Receipt

According to a recent Bloomberg report, the IRS reiterated its position that digital asset staking rewards should be taxed as income as soon as they are generated and made available to the recipient. This outcome of the case is expected to have wide-ranging implications for the treatment of staking rewards under US tax laws.

The regulator further clarified that staking does not result in the creation of new property, refuting comparisons to farming, manufacturing, or creative works. The IRS’ decision dismisses the argument that staking-generated cryptocurrency should only be taxed upon sale or exchange.

The IRS’ stance is regarding an ongoing legal dispute involving Tennessee residents, Joshua Jarrett and Jessica Jarrett. The couple – who staked cryptocurrency on the Tezos (XTZ) network – argued that their staking rewards should not be taxable until they are sold or exchanged for other assets. They contended that their rewards represented “new property,” akin to crops harvested by a farmer or a book written by an author.

However, the IRS countered that all rewards generated through staking activities constitute taxable income upon receipt. In its official statement, the agency remarked:

Revenue Ruling 2023-14 requires taxpayers who receive staking rewards to report the rewards as income at their fair market value upon having the ability to sell, exchange, or otherwise dispose of them.

For the uninitiated, crypto staking is the process of locking up cryptocurrency in a blockchain network to help validate transactions and secure the network, earning rewards in return. It typically involves proof-of-stake (PoS) or similar consensus mechanisms, allowing participants to earn passive income on their holdings.

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Author: Ash Tiwari