Staking Rewards: Ordinary Income at Receipt — What Rev. Rul. 2023-14 Settled
For years, the tax treatment of staking rewards was genuinely uncertain. Then came Rev. Rul. 2023-14 — and the IRS drew a clear line. Here is what the ruling says, why the Jarrett case did not change the outcome, and how Saim Akif, CPA implements it in client filings today.
Pre-2023 Ambiguity: The Open Question
Before Rev. Rul. 2023-14, the dominant practitioner view was that staking rewards should be treated as ordinary income when received — by analogy to Notice 2014-21’s treatment of mining income. But a vocal minority argued that staking rewards were analogous to newly created property (like crops grown from land or a manufactured good) and should not be taxable until sold.
This debate mattered: under the “not taxable until sale” theory, you could accumulate staking rewards without any current tax, converting what would have been ordinary income into capital gain at exit. The theory had real dollar value.
The Jarrett Case
Joshua Jarrett and his wife sued the IRS in 2021, arguing that their Tezos staking rewards were newly created property and not income at receipt. The IRS initially offered a full refund of the taxes paid on the rewards — which the Jarretts declined, wanting a precedential ruling. The district court dismissed the case for lack of jurisdiction after the IRS’s refund. In 2023, the case was appealed. The Sixth Circuit found a limited path to proceed on certain grounds — but Rev. Rul. 2023-14 rendered the constitutional question moot for most taxpayers by providing clear guidance.
“The Jarrett case was procedurally interesting but never changed the law. Rev. Rul. 2023-14 is now the authoritative guidance. We file staking rewards as ordinary income at receipt — period.”
— Saim Akif, CPA
What Rev. Rul. 2023-14 Actually Says
Rev. Rul. 2023-14 provides that a cash-basis taxpayer who receives staking rewards must include the FMV of those rewards in gross income in the taxable year in which the taxpayer receives them — determined by when the taxpayer obtains “dominion and control” over the rewards.
Key points from the ruling:
- FMV at the time of receipt is the income amount
- That same FMV is also the taxpayer’s initial cost basis in the reward tokens
- The ruling applies to “proof-of-stake validation” but is widely interpreted to apply to all consensus-mechanism staking that results in reward tokens
- The character of the income is ordinary (not capital) at receipt
FMV at “Dominion and Control”: The Timing Question
The ruling’s reference to “dominion and control” matters for liquid staking, restaking, and platforms with lock-up periods. If rewards accrue but are locked (you cannot withdraw, transfer, or sell them), there is an argument that you do not have dominion and control until the lock-up lifts. Saim documents the lock-up terms for each staking protocol in the client file and determines the recognition date based on actual accessibility — not the theoretical accrual date.
For rewards automatically re-staked by the protocol (restaking), Saim treats re-staking as a “claim and reinvest” event: ordinary income at FMV on the re-staking date, with a new basis established. This is the conservative, dominant-practice position.
Restaking vs. Claiming: Practical Documentation
Many liquid staking protocols (Lido, Rocket Pool, EigenLayer) allow rewards to accrue as rebasing tokens or separate reward tokens. Saim’s documentation standard for staking clients includes:
- Protocol name, staking contract address
- Date and amount of each reward receipt (or daily/weekly aggregated total)
- FMV source (CoinMarketCap API, CoinGecko, or the relevant DEX price)
- Whether rewards were claimed, restaked, or auto-compounded
- Lock-up terms at the time of each reward event
This documentation becomes the basis for Schedule 1 (or Schedule C for business stakers) income reporting and the cost basis for future Form 8949 dispositions. See our services for how we build staking subledgers as part of advisory engagements.
Need Help?
Staking across multiple protocols creates hundreds of income events that must be tracked at FMV. Saim Akif, CPA builds the staking income schedule from on-chain data and files it compliantly with every nuance documented. Schedule a 30-minute intake with Saim.
Frequently Asked Questions
What if I staked through an exchange like Coinbase?
Exchange-based staking (Coinbase Earn, Kraken staking, etc.) is treated the same way — ordinary income at FMV when rewards are credited to your account. Some exchanges issue 1099-MISC for staking income; others do not. Either way, the income must be reported on Schedule 1 (line 8z) or Schedule C for a business staker.
Are validator node rewards treated differently from delegator rewards?
For federal income tax purposes, both are ordinary income at FMV when received. Running a validator node may qualify as a trade or business (Schedule C) if done at scale with a profit motive — which unlocks equipment depreciation and other business deductions. Delegation is typically an investment activity (Schedule 1).
What about Ethereum liquid staking tokens like stETH?
Liquid staking tokens like stETH (Lido) rebase daily — your stETH balance increases each day as rewards accrue. Saim’s position is that each daily rebase constitutes a receipt of ordinary income equal to the incremental stETH at current FMV. This results in hundreds of income events per year that must be tracked systematically, typically via API-level data from Lido or a crypto tax platform.
Does Rev. Rul. 2023-14 apply to all blockchains?
The ruling was specifically about proof-of-stake validation but has been widely interpreted to apply to all staking reward mechanisms — including delegated staking on Cosmos, Polkadot, and Solana. The IRS has not issued blockchain-specific rulings; the “dominion and control” principle is considered the governing standard across all chains.
Staking rewards across Ethereum, Solana, or liquid staking protocols? Saim tracks every reward event and files a compliant staking income schedule. Schedule a 30-minute intake with Saim.