Recently, the Tax Court issued a memorandum opinion in Paschall v. Commissioner, T.C. Memo. 2026-46, holding that the cryptocurrency proof-of-stake rewards at issue in that case were taxable when received.
The taxpayers were husband and wife. The husband, Mr. Paschall, was the sole owner of an account with eToro USA, LLC, a digital asset platform. His eToro account held tokens (i.e., units with an identifiable value in U.S. dollars or currencies that can be converted into U.S. dollars) in Cardano, a cryptocurrency using a proof-of-stake blockchain. Under a proof-of-stake protocol, token holders “stake” their tokens as collateral (stakers). In eToro’s staking service, customers received staking rewards in proportion to the number of tokens they held in their eToro accounts. From November 23, 2021 until the end of 2021, eToro restricted Mr. Paschall’s ability to transfer his Cardano tokens to another account or platform. He retained the ability to sell his tokens, but did not sell any during this period. In 2021, Mr. Paschall received tokens valued at $33,354 as staking rewards, and those tokens were indistinguishable from the existing tokens in his account. He could sell any tokens for cash at any time.
The taxpayers argued that Mr. Paschall’s staking rewards should not be included in gross income upon receipt (i.e., when the taxpayer receives the property and has the ability to exercise control over it). The court held that cryptocurrency is property for Federal income tax purposes and walked through cases involving cryptocurrency and IRS guidance addressing the taxation of cryptocurrency (Notice 2014-21 and Rev. Rul. 2023-14, IRB 2023-33).
Then the court cited the expansive definition of gross income (“all income from whatever source derived” in section 61(a)) and cited the seminal tax case, Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431(1955), for the proposition that gross income includes all accessions to wealth over which the taxpayer has complete dominion and control. The taxpayers contended that Mr. Paschall did not have dominion and control over the staked tokens because eToro restricted his ability to transfer the tokens to another wallet. The court concluded, however, that his ability to convert the tokens to cash at any time was an unrestricted ability to sell that equated to ownership. See Helvering v. Horst, 311 U.S. 112, 118 (1940). The court held that his restriction on transfers to wallets to services other than eToro did not negate his accession to wealth upon his receipt of the staking rewards.
The taxpayers also argued that the staking rewards should not be taxed until realized through a sale or disposition, equating them to growth or accretion in value, citing another tax chestnut, Eisner v. Macomber, 252 U.S. 189 (1920). In that case, the Supreme Court held that the stock dividend at issue merely increased the total number of outstanding shares; it did not create an increase or shift in the value owned. The court rejected that argument in Mr. Paschall’s case because his staking rewards increased his proportion of all outstanding Cardano tokens and, critically, Mr. Paschall could opt out of the staking service.
The taxpayers’ final argument was that the staking awards were self-created property that yield income only upon sale. The court rejected the argument, stating that stakers do not create anything by themselves. Instead, staked tokens validate transactions on the blockchain and, in exchange for validation, the cryptocurrency’s protocol grants stakers additional tokens. The fact that the tokens may be newly created is immaterial because the stakers are not the ones who created them and the stakers lacked the power to decide whether and when the property was created.
Of note, the case was fully stipulated under Tax Court Rule 122. As a fully stipulated case, the parties moved for the court to rule on the case based on facts established through admissions, stipulations, depositions, or some other way. This is important because not all staking fact-patterns are the same and, in other cases, taxpayers are asserting that through staking, a taxpayer creates new property that is income upon sale (not receipt).
In a future case with a distinguishable fact pattern, a taxpayer should evaluate the benefit of expert testimony to explain the operation of staking arrangements (including whether other platforms took different approaches to staking and whether staking rewards were redistributed from a fixed supply). Paschall, supra, at 2 & nn.7-8.
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This alert should not be construed as legal advice, does not create an attorney-client relationship, and reflects the state of the law as of the date on this notice. Subsequent developments in the law can affect the conclusions in this alert.
June 30, 2026. Written by Kim Tyson and Esther Bosire.