On July 31, the Internal Revenue Service (IRS) released new guidelines explaining how they will tax cryptocurrency staking rewards.
The Internal Revenue Service (IRS) issued new guidelines on July 31 regarding the taxation of cryptocurrency staking rewards.
According to the new rules, taxpayers who participate in staking on proof-of-stake blockchains and earn additional cryptocurrency as rewards must include the value of these rewards in their gross income in the same taxable year they receive them.
This rule applies specifically to cash-method taxpayers. It states that the value to be reported is the fair market value of the cryptocurrency at the time when the taxpayer gains “dominion and control” over the rewards.
This typically occurs when the taxpayer can sell, exchange, or use the received cryptocurrency units for transactions.
Digital Representation of Value:
The Internal Revenue Code defines a digital asset as a “digital representation of value recorded on a secure digital ledger, like blockchain.” This category includes cryptocurrencies and convertible virtual currencies.
In 2022, two cryptocurrency investors tried to get a tax refund for the taxes they paid on Tezos (XTZ) staking rewards. They argued that staking rewards should not be taxed as income because staking generates new property. They took the matter to court and declined a refund offer from the IRS to seek an official ruling.
However, the case was dismissed in October 2022, and appeals have been pending since November.
Although that particular case didn’t result in a ruling, the IRS website indicates that staking income should be treated as taxable income, just like mining income.
Recently, the IRS issued new guidelines on cryptocurrency taxes after resolving another tax dispute involving cryptocurrency exchange Kraken.
The exchange was required to provide specific investor data to the IRS on June 30. However, it managed to limit the scope of the agency’s requests through successful legal negotiations.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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