U.S. Tax Court Holds Staking Rewards Are Gross Income Upon Receipt
On June 4, 2026, the U.S. Tax Court issued the first opinion directly addressing the tax treatment of staking rewards, holding that rewards must be included in gross income upon receipt.
In Paschall v. Commissioner, T.C. Memo. 2026-46, the court held staking rewards must be included in gross income upon receipt.
The taxpayers in Paschall held Cardano tokens in a custodial eToro account and received staking rewards each month in the form of additional tokens. Despite the transfer restrictions imposed on the rewards, the court found they constituted taxable income when received because they were automatically credited to the taxpayers' account and could be immediately converted to cash.
The court rejected the taxpayers' argument that staking rewards are analogous to self-created property, like farming, which should be taxed only upon disposition. The court also rejected the taxpayers' reliance on Eisner v. Macomber, 252 U.S. 189 (1920), finding that, unlike a pro rata stock dividend which leaves proportionate ownership unchanged staking rewards increased Paschall's proportionate ownership interest in outstanding Cardano tokens.
The court relied on the broad definition of income articulated in Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), concluding that staking rewards are constructively received gross income under Internal Revenue Code § 61. Notably, the court's analysis was grounded in case law rather than on the Internal Revenue Service's position in Revenue Ruling 2023-14, regarding the tax treatment of staking rewards. Further, incomplete and arguably inaccurate stipulations of facts made by the pro se litigants, and the absence of any expert testimony (which the court acknowledged hampered its analysis), were likely outcome-determinative.
The staking tax question is far from closed: Paschall is not binding precedent as a memorandum opinion, a potential appeal looms, and parallel cases working their way through the courts, including Jarrett v. United States and Rogovy v. Commissioner, may yet produce conflicting authority that forces the issue to a higher court. And recent Congressional bills address the taxation of staking rewards in a manner that could legislatively overrule Paschall. Consequently, many may view Paschall as an opening salvo rather than settled law.
