IRS: Crypto Staking Rewards Taxable Once Investor Gets Hands on Tokens

A cryptocurrency investor given rewards for validation activity on a proof-of-stake network should count the rewards as income in the year the investor gets control of those tokens, according to a ruling issued Monday by the Internal Revenue Service (IRS).

“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,” according to the legal analysis, which says that value should be figured as of the moment the U.S. taxpayer gains control of the tokens.

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. Kraken, for instance, settled accusations from the SEC by shutting down its staking platform in February. More recently, the agency said Binance’s staking service violates securities law.