The latest tax ruling from the US Internal Revenue Service (IRS) is sure to set tongues wagging in the crypto community as it formally classes staking returns as taxable income. According to the just-released Revenue Ruling of 2023-14, all gains from staking digital assets must be reported as gross income – same as it was received in that particular year. The overall perception is that any earnings originating from staking should be deemed real income, irrespective of its form – money, property or services.
The legal analysis from the IRS further elucidates this ruling applies to cash-method taxpayers who engage in staking of cryptocurrencies on a proof-of-stake blockchain, where additional units of cryptocurrency are rewarded upon validation. Essentially, the fair market value of these validation rewards are set to figure in the taxpayer’s income in the taxable year the individual gains dominion and control over such rewards.
Interestingly, the revenue service wants those who receive cryptocurrency for goods or services, as well as those invested in crypto mining to include the fair market value of the crypto in their gross income – served on the same plate as the year it was obtained.
However, ambiguity plagues the ruling in the sense that it is silent on the tax filings for those complex souls who stake across different networks – a predicament that can pose confusion for a good many crypto investors.
In the recent past, the IRS has been frequently playing Sherlock as in its pursuit of understanding the crypto asset class. A case in point was its announcement in May revealing intentions to deploy qualified personnel in four cities renowned worldwide, with a focused agenda to fight cybercrime – particularly tax and financial offences involving cryptocurrency.
On record, the IRS’ Criminal Investigation arm has to its merit seized colossal amounts of data and cryptocurrency – an observation presented in an annual report for the fiscal year 2022. The IRS also made waves with its role in the historcal largest single financial seizure incident where they botched an operation involving crypto assets stolen from the cryptocurrency exchange Bitfinex during a 2016 hack.
Amid heightened scrutiny by the US Securities and Exchange Commission (SEC) targeting staking services offered by crypto exchanges based in the U.S., the latest ruling from the IRS comes in. Earlier this month, the IRS filed a court petition just after crypto exchange Kraken arrived at a settlement with the SEC over allegations concerning securities law violations in connection to its staking service.
Recently, an order from the US District Court for the Northern District of California instructed Kraken to disclose its accounts and transaction data to the IRS to investigate potential underreporting of taxes by crypto users. This implies Kraken is mandated to divulge information about users innvolved in transactions exceeding $20,000 within a year.
Source: Cryptonews
