IRS Clarifies When Cryptocurrency ‘Staking’ Rewards Are Included in Taxable Income

September 6, 2023


By Nicole DeRosa, Tax Partner

The crypto crackdown is underway and the IRS has now published new guidance regarding the treatment of cryptocurrency staking rewards. In Revenue Ruling 2023-14, the IRS has ruled that staking rewards must be included in gross income for the taxable year in which the taxpayer acquires dominion and control of the awarded cryptocurrency.  

Staking Rewards and Their Uncertain Tax Treatment

“Staking” of cryptocurrency involves a user pledging their cryptocurrency to a particular blockchain to help validate transactions. In exchange for validating and maintaining the blockchain network’s integrity, users are rewarded native tokens of the blockchain. 

Staking generally comes in two varieties:

  • In “illiquid” staking, a user stakes their token to a validator and receives an annual percentage rate (APR) on the investment. APR is the yearly interest and fees paid to the staker. The original crypto is tied up – illiquid – until such time as the user unstakes it and obtains the original investment plus any APR earned.
  • In “liquid” staking, the process is similar, except that, while the investment is staked, the end user is rewarded with new liquid staking tokens, a tokenized representation of the underlying investment. These new liquid staking tokens can later be redeemed to unstake the underlying crypto, but more importantly, can be traded or used as collateral in liquid fashion until redeemed.

Until now there has been no direct guidance addressing the federal tax treatment of staking rewards. The initial guidance provided by the IRS on the treatment of crypto (Notice 2014-21) addressed the taxation of mining, but not staking. As part the Q&A section of the Notice, the IRS notes that when crypto is mined it is includible in gross income of the recipient on the date of receipt. Mining occurs through a “proof of work” model in which computational power results in rewards, whereas staking is a “proof of stake” process in which users stake existing assets for rewards. The two processes have some similarities but are ultimately different in many ways and thus as a result, taxpayers have questioned the appropriate federal tax treatment of staking rewards despite the early guidance on mining. 

New IRS Guidance

Revenue Ruling 2023-14 states that staking rewards of cash-method taxpayers must be included in taxable income when they acquire possession of the rewards under the “dominion and control” standard. By definition, “dominion and control” generally refers to the taxpayer’s ability to sell or otherwise transfer the asset. The ruling further clarifies that this treatment applies whether the taxpayer stakes directly to a proof-of-stake blockchain or receives additional tokens through staking on an exchange. The amount of includible income is based on the reward’s fair market value on the date the taxpayer gains dominion and control.  Although the ruling doesn’t specifically address liquid-versus-illiquid staking arrangements, the ruling appears to apply in both cases.  Future guidance is expected to clarify.


As a result of the Revenue Ruling, taxpayers would be well-advised to assess current and past staking rewards and consider at which point they obtained possession for tax purposes (dominion and control), and, therefore, when such rewards became taxable. 

The release of the ruling comes as litigation regarding staking rewards continues to play out in Jarrett v. United States, No. 22-6023 (6th Cir. 2023). The taxpayer’s argument in Jarrett is that staking rewards are akin to self-created property (such as mineral extraction from a mine) and therefore should not be taxed until the ultimate disposition of the property. The case recently went through oral arguments in the Sixth Circuit.

Written by Kevin Ainsworth, Anthony Aniello and Joe Pacello. Copyright © 2023 BDO USA, P.A. All rights reserved.


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