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The Character of Staking Rewards: Interest, Rent, Royalties, or a Hidden Partnership?  

Author:  Matthew E. Foreman.; Michelle S. Kabel.

Source: Volume 41, Number 01, Fall 2023 , pp.57-65(9)

Journal of Taxation of Investments

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On July 31, 2023, the Internal Revenue Service (IRS) published Revenue Ruling 2023-14, regarding the tax treatment for cash method taxpayers that receive validation rewards in proof-of-stake transactions. The IRS confirmed its long-held position that validation rewards from a proof-of-stake consensus protocol are treated as gross income for cash-method taxpayers pursuant to Internal Revenue Code Section 61(a) when the taxpayer gains dominion and control over the validation rewards. This article considers what the character of that income should be.

Keywords: Rev. Rul. 2023-14, staking, rewards, character of gain, cryptocurrency, Jarrett v. U.S., tax

Affiliations:  1: Falcon Rappaport & Berkman LLP; 2: Falcon Rappaport.

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