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The world of digital currency has just witnessed a major decision that will shape the way transactions are handled in the United States. A recent announcement by the Internal Revenue Service (IRS) on July 31 has made it clear that all crypto staking rewards must be included as part of gross income.
The IRS's Revenue Ruling 2023-14 focuses on cash-method taxpayers, applying to those who validate transactions on proof-of-stake blockchains. Whether staking directly or through a centralized crypto exchange, all are subject to this ruling. What's new here is the ruling's stipulation that the rewards must be counted as income at their fair market value at the time they are received.
This decision adds crypto staking rewards to the umbrella of gross income, which includes money, property, and services. The key term in the ruling is "dominion," meaning the moment the investor gains control over the assets, including the ability to sell, exchange, or dispose of them.
Danny Talwar, the head of tax at crypto tax firm Koinly, shed more light on this by explaining that staking rewards would only be taxed when they are available to be sold. Essentially, if the rewards are locked and the recipient cannot control them, they won't be taxable until that control is possible.
Some experts see the IRS's stance as aligning crypto staking with stock dividends. Ryan Selkis, the founder of Messari, made this connection. However, not everyone is pleased with the ruling. Jason Schwartz, a tax partner at Fried Frank, expressed his disappointment, calling attention to the fact that tax law typically requires the existence of a payer for taxable income, something not necessarily present in this context.
This ruling comes amid growing scrutiny from other federal regulators like the Securities and Exchange Commission, who are tightening their watch over crypto-staking service providers and exchanges, alleging illegal securities sales.
The digital currency landscape continues to evolve rapidly, and this latest ruling is a significant step in shaping the legal framework surrounding it in the United States.
