INSIGHT

Tax Court Holds Crypto Staking Rewards Are Taxable Upon Receipt When Taxpayer Has Dominion and Control – What That Means for You

Javier Salinas, Michelle Choy • July 13, 2026

Services: Tax Industries: Blockchain & Digital Assets

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If you’ve been staking cryptocurrency and deferring the tax question until you sell, a recent US Tax Court decision just changed the calculus. In Paschall v. Commissioner, T.C. Memo. 2026-46, the court held that staking rewards are taxable when the taxpayer gains dominion and control, which in Paschall occurred when the rewards were credited and immediately saleable. Not when you sell. Not when you transfer. When you receive them and have dominion and control.

This is the first Tax Court merits decision directly addressing staking rewards, and while its precedential weight has some limits, the ruling sends a clear signal to investors, founders, and institutions holding digital assets.

What the Court Determined

The taxpayer in Paschall held Cardano tokens through eToro, a digital asset platform that automatically staked customers’ holdings unless they opted out. Throughout 2021, Cardano tokens were credited to his account monthly as staking rewards. He could have sold those tokens for cash at any time. He didn’t, and he argued that the rewards shouldn’t be taxable until he disposed of them through a sale or exchange.

eToro issued a Form 1099-MISC reporting the fair market value of the rewards as other income. The taxpayer challenged that characterization. The Tax Court disagreed with him.

The ‘Dominion and Control’ Standard

The court’s analysis turned on a straightforward question: did the taxpayer have dominion and control over the staking rewards when they were credited to his account? Under IRC Section 61, gross income includes all realized accessions to wealth over which a taxpayer has complete dominion and control. Income is constructively received when it is credited to an account and available for the taxpayer to draw on freely, unless there is a substantial limitation or restriction on that access. Here, the court found that:

• The rewards were immediately convertible to cash.
• While the platform temporarily restricted external transfers, the taxpayer could sell the tokens at any time.
• He had unfettered command over the economic value of the rewards from the moment they were received.

That was enough. The rewards were income in the year received, full stop.

Why the Taxpayer’s Alternative Arguments Didn’t Hold Up

The taxpayer raised two theories that have been points of ongoing debate in the digital assets community, and the court rejected both.

The Stock Dividend Analogy

Relying on the Supreme Court’s landmark Eisner v. Macomber decision, the taxpayer argued that staking rewards resemble nontaxable stock dividends and shouldn’t trigger income recognition. The court wasn’t persuaded. The distinction matters: a stock dividend doesn’t change a shareholder’s proportionate interest or increase the intrinsic value of their holdings. Cardano staking rewards, by contrast, increased both the taxpayer’s proportionate holdings and the overall value of his position. And critically, staking wasn’t automatic across the board. Other Cardano holders could opt out, and other platforms could treat staking differently. The rewards were a realized accession to wealth, not a mere reclassification of existing value.

The Self-Created Property Theory

The taxpayer also pointed to Jarrett v. United States, a case in which the government conceded a refund to taxpayers who argued that staking rewards are self-created property. The Tax Court was direct in its rejection: the government’s concession in Jarrett was limited to issuing a refund and did not address the merits of the argument. It was not binding precedent. More fundamentally, the court drew a clear conceptual line: the taxpayer in Paschall didn’t create the tokens and didn’t control their issuance. The blockchain protocol, Cardano, awarded tokens in exchange for validation services. That’s meaningfully different from a taxpayer creating something through their own labor or creative effort. The rewards were therefore income upon receipt under IRC Section 61.

What This Ruling Doesn’t Settle

The decision is significant, but it isn’t the final word. A few things are worth noting as you assess your own situation.

Fact Patterns Matter

The court acknowledged that other circumstances could lead to different conclusions. If a taxpayer did not have dominion and control over staked tokens, such as where meaningful restrictions on access or transfer exist, the analysis could change. The ruling applies most directly to scenarios like Paschall: custodial platform staking where tokens are freely tradeable upon receipt.

The practical takeaway is not simply that all staking rewards are always taxable when a platform posts them. The relevant question is when the taxpayer has dominion and control over the reward. In Paschall, that point occurred when eToro credited Cardano rewards to the taxpayer’s account because the rewards were immediately saleable for cash, notwithstanding restrictions on external wallet transfers. Taxpayers with materially different arrangements, such as locked staking, self-custodied validation, liquid staking tokens, or rewards that are accrued but not claimable, should document the technical and contractual facts supporting when, if ever, dominion and control arises.

The Jarrett Litigation Continues

The Jarretts filed a new refund suit in October 2024 covering a subsequent tax year, and it is currently scheduled for trial in September 2026. Critically, this renewed case involves a different fact pattern: the taxpayer personally participated in Tezos block validation, known as “baking,” using his own tokens and computing infrastructure. That self-directed, infrastructure-intensive activity could present a stronger case for the self-created property argument that the Paschall court sidestepped.

The Court’s Own Limitations

The Tax Court itself acknowledged gaps in its understanding of how staking protocols work in practice, citing the absence of expert testimony as a constraint on its analysis. That acknowledgment could matter for taxpayers with more complex staking arrangements or technical fact patterns that differ from what was presented in Paschall.

What Legislation Could Change

This ruling may not be the permanent framework. Cryptocurrency regulation bills are expected later this year, and early legislative drafts have included provisions that would subject staking rewards to non-recognition until disposal. If enacted, such a provision could materially change timing for mining and staking rewards for future tax years. That said, legislation is not guaranteed, and the timeline is uncertain. Planning under current law is the prudent course until Congress acts.

What You Should Be Doing Right Now

Whether you stake tokens personally, through a custodial platform, or as part of an institutional digital assets strategy, this decision has important crypto tax implications. Digital asset custodians and trading platforms should also be vigilant in identifying and timely reporting certain staking transactions that fall under similar fact patterns. Here’s where to focus your attention:

• Review your staking activity. Understand which platforms you use, whether staking is automatic or elective, and whether you can freely sell rewards at the time they are credited to your digital wallet or platform account.
• Assess your crypto tax reporting readiness. If you received staking rewards in prior years and did not report them as income in the year of receipt, consider your exposure and whether amended returns or proactive disclosure may be appropriate. Platforms should maintain reward-credit timestamp, quantity, token, and fair market value information to determine any reportable income on Form 1099-MISC.
• Track your cost basis. Staking rewards recognized as income at fair market value upon receipt establish your cost basis in those tokens, which matters when you eventually dispose of them. If the platform affects the disposition, the appropriate cost basis should be reported on Form 1099-DA by the platform.
• Monitor the legislative landscape. Pending cryptocurrency legislation could materially change the rules, and staying informed will help you respond quickly when Congress acts.
• Document your specific facts. Given that the court’s analysis is highly fact-dependent, detailed documentation of your staking arrangements, platform terms, and access restrictions could be meaningful during a potential crypto audit.

BPM Can Help You Navigate Digital Asset Tax Complexity

The tax treatment of digital assets is one of the fastest-evolving areas of federal tax law, and decisions like Paschall add new layers of complexity for individuals and businesses transacting in cryptocurrency. BPM’s tax services bring deep knowledge of the regulatory, reporting, and planning considerations across the blockchain & digital assets industry, including staking, mining, trading, and holding digital assets.

Whether you’re working through the implications of a recent court ruling, preparing amended returns, or building a forward-looking tax strategy for your crypto portfolio, BPM’s professionals are ready to help. Contact BPM today to discuss your digital asset tax situation and what steps make sense for you.