Crypto staking rewards must count as taxable income, IRS says

U.S. cryptocurrency investors who earn rewards from staking services will need to include the value of those rewards as part of their gross income, the Internal Revenue Service said Monday.

The IRS said in a ruling that if a taxpayer stakes cryptocurrency native to a proof-of-stake blockchain and receives rewards, “the fair market value of the validation rewards received is included in the taxpayer's gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards.”

The fair market value is determined as of the date and time the investor gains dominion and control over the rewards, according to the IRS.

Heightened scrutiny

The IRS update comes as authorities have homed in on certain staking services provided by crypto exchanges in the U.S.

In February, the Kraken crypto exchange settled charges brought by the Securities and Exchange Commission for failing to register the offer and sale of its staking program, and agreed to pay a $30 million fine.

A federal court also ruled in July that Kraken must provide the IRS with account and transaction information.

Staking is also at the heart of the SEC’s lawsuit against Coinbase, the largest crypto exchange in the U.S. The SEC alleged that the company’s staking products amount to an investment contract under American law and the exchange failed to register its staking-as-a-service program.