Cryptonic Tech Blog

In its recent Revenue Ruling of 2023-14, the US Internal Revenue Service (IRS) has unveiled new tax guidelines, stating that profits earned from crypto staking will be treated as taxable income. According to the ruling issued on Monday, crypto investors must report the rewards received from staking digital assets as gross income in the same year they are received.

The document specifies that gross income encompasses income realized in any form, including money, property, services, and rewards from staking activities. The ruling specifically applies to cash-method taxpayers who participate in staking activities on a proof-of-stake blockchain and receive additional cryptocurrency units as rewards upon validation.

Additionally, the IRS clarified that taxpayers who receive cryptocurrency as payment for goods or services or engage in cryptocurrency mining must include the fair market value of the received crypto in their gross income for the year they gain control of the digital assets.

However, the ruling does not offer clear guidance on tax filings for individuals staking on multiple networks, leaving such crypto investors facing complexities in their tax reporting.

The IRS has been increasingly focusing on the crypto asset class in recent times. In May, the agency announced plans to deploy experts to several cities worldwide to combat cybercrime, particularly targeting tax and financial crimes involving cryptocurrencies.

In line with its heightened scrutiny, the IRS’ Criminal Investigation arm reported seizing significant amounts of data and cryptocurrency during the 2022 fiscal year, including involvement in the largest single financial seizure in government history related to a 2016 hack of the Bitfinex crypto exchange.

The IRS’s latest ruling coincides with the US Securities and Exchange Commission (SEC) taking aim at certain staking services provided by crypto exchanges in the US. The SEC filed a court petition against the crypto exchange Kraken in February, which later reached a settlement over allegations of securities law violations related to its staking service.

In response to the IRS’s investigation into potential tax underreporting, the US District Court for the Northern District of California ordered Kraken to provide account and transaction details of users who engaged in transactions exceeding $20,000 within a calendar year.