- The Internal Revenue Service has ruled that U.S. cryptocurrency investors must report staking rewards as part of their gross income in the year it was received, according to a Monday ruling released by the agency.
“If a cash-method taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs, 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,” the IRS said in its ruling.
This ruling comes after regulators in the U.S. have taken enforcement actions against multiple cryptocurrency exchanges and their staking-as-a-service offerings, saying these programs amount to the unlawful offering of securities. The regulator also filed similar charges in June against Coinbase, the largest crypto exchange in the U.S., and Binance.US, the U.S. arm of Binance Global.
According to Jason Schwartz, tax partner and digital assets co-head at Fried Frank, some of the areas that will need to be addressed include whether “slashing penalties” count as ordinary losses, income tax on foreigners, withholding from foreigners, and how to report the nuances of liquid staking.