In a significant update, the Internal Revenue Service (IRS) has issued a revenue ruling clarifying the tax treatment of rewards received from staking cryptocurrency on proof-of-stake blockchains. The ruling addresses cash-method taxpayers who stake cryptocurrency and earn additional units of cryptocurrency as validation rewards.
According to the IRS, the fair market value of these rewards must be included in the taxpayer’s gross income for the taxable year in which they gain control over the rewards. This means that when taxpayers have the ability to sell, exchange, or dispose of the rewarded units, they need to report their value in their income for that year.
The ruling further explains that cryptocurrency, treated as property for tax purposes, requires adherence to general tax principles applicable to property transactions. The growing popularity of proof-of-stake consensus mechanisms makes this guidance crucial for cryptocurrency investors and users.
The new ruling aims to provide clarity amidst the evolving digital asset landscape, ensuring taxpayers understand their tax obligations related to cryptocurrency rewards.
