🏦Crypto Rewards -Understanding IRS Guidance on Taxation of Staked Cryptocurrency Rewards
The Internal Revenue Service (IRS) recently issued Rev. Rul. 2023–14, addressing the tax treatment of rewards earned from staking cryptocurrency on proof-of-stake blockchains. This ruling provides important insights for taxpayers who engage in such activities.
IRS document link shared later in this blog.
Let’s break down the key points:
Issue:
The central question posed in the ruling is whether taxpayers who stake cryptocurrency on a proof-of-stake blockchain and receive additional cryptocurrency as rewards must include the value of these rewards in their gross income, and if so, in which taxable year.
Background:
- The Internal Revenue Code defines digital assets, such as cryptocurrency, as any digital representation of value recorded on a secure distributed ledger.
- Cryptocurrency, including convertible virtual currency, is treated as property for tax purposes, and general tax principles applicable to property transactions apply.
- Cryptocurrency transactions are secured through cryptography on a distributed ledger known as a blockchain.
