The US Tax Court recently held in a Memorandum Opinion that cryptocurrency staking rewards must be included in a taxpayer’s gross income in the year of receipt, not when later sold. This finding, which validates the position taken by the IRS under IRC Section 61 (“Gross Income Defined”) and existing case law, at least partially settles longstanding controversy in the crypto community as to precisely when crypto income is realized. Memorandum Opinions are written findings based on the facts of a particular case produced by individual Tax Court judges and are considered legally authoritative.
In Paschall v. Commissioner , the taxpayer received Cardano tokens as rewards for staking on the eToro digital asset platform. Paschall, who represented himself, argued that rewards should be treated the same as self-created property, which is not taxable until sold, and that restrictions imposed by eToro on withdrawal of assets negated treatment of those assets as income. The Court applied the principle of dominion and control, concluding the taxpayer had an accession to wealth (as ordinary income) when the tokens were credited to the account, not when he later sold them. In this context, “dominion and control” is a legal term of art which applies to situations where the timing of income is unclear or in dispute. The Court also cited the taxpayer’s ability to sell the rewards for cash at any time, which the court deemed equivalent to ownership, even with temporary restrictions on transferring tokens to an external wallet. The court rejected the taxpayer’s arguments that the rewards were 1) like non-taxable stock dividends, noting that staking increased the taxpayer’s proportional interest, or 2) like self-created property, finding that stakers do not create the assets themselves.
The taxpayer’s arguments in Paschall echoed those of the taxpayers in Jarrett v. United States, currently pending in its second pass through the US District Court for the Middle District Tennessee. In the Jarrett case, the taxpayer claimed that Tezos tokens are “self-created property,” and thus cannot be taxed under current law until sold. Unlike Paschall, Jarrett chose to pay the tax ($3,793) and then sue the IRS in District Court for a refund (payment is a prerequisite when seeking relief arising out of any tax matter not timely filed in the Tax Court). For a variety of technical and legal reasons, the IRS first attempted to avoid a verdict in District Court by simply issuing Jarrett a refund, thus removing his standing to sue. Jarrett refused to cash the refund check, preferring instead to see the issue argued to a conclusive legal finding. The Court in Jarrett is currently scheduled to hear competing motions for summary judgement filed by Jarrett and the IRS in the fall of 2026.
These cases reflect both the simplicity and complexity of applying exiting tax law to crypto asset matters, many of which include facts with no obvious analog outside the the crypto space.
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