Cryptocurrency Staking Rewards Taxation under Section 61
June 4, 2026
d the ability to sell the tokens for cash at his discretion. The IRS reported the value of the staking rewards at $33,354 for the tax year in question.
In their defense against the deficiency assessment, the petitioners presented three main arguments to support their claim that the staking rewards should not be classified as gross income upon receipt. Firstly, they contended that the limitations imposed by eToro on transferring tokens meant they lacked full control over the assets. Second, they likened the staking rewards to a pro rata stock dividend, citing the case of Eisner v. Macomber to suggest that it was merely an increase in value. Lastly, they put forward the concept that the rewards were akin to “self-created property,” asserting that they should only be subject to taxation upon eventual sale.
The court, in its analysis, focused on the concept of dominion and control to determine if the staking rewards constituted taxable income under Section 61 of the Internal Revenue Code. Despite the transfer restrictions, the court held that since Mr. Paschall could convert the tokens into cash whenever he chose, he had full ownership and control over the assets. Drawing from precedent cases, the court emphasized that the ability to dispose of income was equivalent to ownership and control, irrespective of the limitations on converting tokens into other assets.
The court also dismissed the petitioners’ comparison to stock dividends, noting that while stock dividends do not alter shareholders’ property rights, the staking rewards in question increased the overall value of the Cardano tokens in circulation, leading to a taxable accession of wealth for the petitioners. Additionally, the court rejected the notion of staking rewards as self-created property, highlighting that stakers did not personally create the assets but rather participated in protocol-driven processes that yielded rewards.
Ultimately, the court determined that the staking rewards received by Mr. Paschall were taxable in the year of receipt. The decision was based on the established principles of Section 61 and existing caselaw on income realization through dominion and control. The court affirmed that the fair market value of the rewards constituted gross income as the taxpayers had the ability to enjoy the wealth as and when they wished.
