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The U.S. Tax Court has handed the IRS a meaningful win on one of the most contested questions in cryptocurrency taxation. In a Tax Court Memorandum Opinion issued June 4, 2026, the court found that a taxpayer's staking rewards were taxable income in the year he received them, not when he eventually sold or exchanged the tokens.

The Facts

The taxpayer, Alvie Paschall, earned just over $33,000 in Cardano tokens as rewards for staking. Staking is the process by which holders of certain proof-of-stake cryptocurrencies lock up their tokens to help validate network transactions, earning newly issued tokens in return.

The position at issue was one that many in the crypto community have long argued; newly issued staking rewards should not be taxed when received, but only when later sold or exchanged. The Tax Court disagreed.

The Ruling

The decision mainly focused on the long-standing concept of dominion and control. Judge Cary Douglas Pugh found that Paschall had sufficient control over his reward tokens once he received them, because he could convert them to cash at any time. Although there were restrictions on moving the Cardano tokens to other platforms, nothing prevented him from selling the rewards once they hit his account. That ability to dispose of the tokens was enough to make them income on receipt.

The court relied on Section 61’s broad definition of gross income and long-standing case law requiring income recognition when a taxpayer has dominion and control over an accession to wealth. Applying the actual- and constructive-receipt principles that govern cash-method taxpayers, Judge Cary Douglas Pugh found that the Paschalls had control over their reward tokens the moment they were deposited each month.

Additionally, this logic is consistent with the Supreme Court's 1955 decision in Commissioner v. Glenshaw Glass Co., which defines gross income expansively to capture any clearly realized accession to wealth over which a taxpayer has complete control. As a result, the fair market value of the tokens is taxed when the taxpayer receives and can control them.

Why This is Important

This is the first time a court has decided the staking question on the merits.

Previously, there was substantial press and discussion surrounding the Jarrett litigation, that involved Tezos staking. This never produced binding precedent, because the IRS simply refunded the taxpayers and the case was dismissed before any court ruled. And while the IRS formalized its position in Revenue Ruling 2023-14, that guidance reflected the agency's view, not a judicial holding. Paschall now puts a court's weight behind the receipt-based approach.

Takeaways for Those with Staking Income

For now, the practical guidance is unchanged but reinforced. Staking rewards are generally ordinary income at the time you gain control over them, and the amount of income is the fair market value of the tokens when received.

It is especially important to keep careful and detailed records of receipt dates and value, as your cost basis going forward is that same fair market value, which matters when you eventually sell.

For now, we will need to wait and see whether Congress acts on long-running calls to write clearer rules for digital assets. But as it stands, stakers should plan around a tax bill that arrives when the rewards do, not when they cash out.