New IRS Directive Makes Staking Rewards Taxable Income in the US
The US Internal Revenue Service (IRS) has taken a firm stance on cryptocurrency staking income, declaring that American citizens must treat the value of their staking rewards as taxable income as soon as they gain possession of the rewards.
Cryptocurrency Staking Rewards Are Now Classified as Taxable Income
According to the IRS's recent tax guidelines, cryptocurrency staking rewards become taxable income immediately upon receipt by the taxpayer. As individuals are granted digital assets as incentives for validating transactions, the fair market value of these rewards must be included in the taxpayer's gross income for the relevant tax year.
"The fair market value is determined as of the date and time the taxpayer gains dominion and control over the validation rewards," reveals the IRS. The tax directive by Alina Lewandowski of the Office of Associate Chief Counsel does not provide any exceptions regarding the inclusion of staking rewards in gross income.
IRS Ruling Sparks Debates Over Staking Taxation and Unanswered Questions
The IRS's latest directives have sparked lively discussions across social media platforms, with many raising concerns about gaps and unanswered questions in the ruling. Tax expert Jason Schwartz points out that the guidance leaves several serious questions unresolved. Notably, the IRS fails to address issues such as slashing penalties and whether staking rewards can be counted as losses.
Furthermore, the guidance does not discuss withholding for foreigners, leading Schwartz to ask, "Does delegating to a US node result in withholding for a foreigner?"
Schwartz highlights the difference between traditional staking and liquid staking, stating, "Most taxpayers believe US tax law doesn't 'look through' non-rebasing LSTs like rETH and wstETH." He wonders if this could allow US taxpayers who purchase LSTs to transform current ordinary income into deferred capital gains and ponders whether it's the right policy result.
The IRS's latest revelation comes amidst increased regulatory scrutiny of staking services in the US. In a recent victory against Kraken, the IRS compelled the cryptocurrency exchange to provide transaction details on accounts involved in trades worth USD 20,000 or more during the tax years 2016 to 2020.
What is your take on the latest staking rewards taxable income issued by the IRS? Please share your thoughts and opinions in the comments section below.
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