New IRS Rules Overhaul Crypto Staking and Airdrop Taxation
21 October 2026
The Internal Revenue Service (IRS) has issued comprehensive new guidance on the taxation of cryptocurrency staking rewards and airdrops, setting strict rules on when such income is recognized and its tax treatment. Revenue Ruling 2023-14, released in July 2023, specifies that for cash-method taxpayers, staking rewards on proof-of-stake blockchains are included in gross income when the taxpayer gains dominion and control, defined as the ability to sell, exchange, or otherwise dispose of the asset.
Similarly, Revenue Ruling 2019-24 ruled that airdrops following a hard fork are taxable as ordinary income equal to the fair market value of the new cryptocurrency when first received. The Tax Court affirmed this in Paschall v. Commissioner (2026), ruling that IRS assessments for unreported crypto income were valid under IRC §61(a).
According to a 2026 tax practice overview, the IRS categorizes cryptocurrency as property, with sales and exchanges subject to capital gains tax. However, it treats income from mining, staking, and airdrops as ordinary income, reported on Schedule 1 of Form 1040.
Under current IRS rules, the taxable event for staking and airdrops occurs when the taxpayer receives the coin or token, defined as the time of dominion and control. This does not necessarily mean the tokens are usable at that time.
Expanded Reporting Requirements
The final regulations released in June 2024 under the Infrastructure Investment and Jobs Act will require custodial digital asset brokers to report sales and exchanges on the new Form 1099-DA, effective for transactions on or after January 1, 2025. This expands existing measurement to capture more digital asset activity.
Under the rules, brokers must report gross proceeds from sales and basis information for certain transactions. They apply broadly to trading platforms, hosted wallets, kiosks, and payment processors. An exception allows aggregate reporting for certain stablecoin and NFT sales above de minimis thresholds.
However, Notice 2024-57 provides a temporary exemption from filing for activity like wrappers, liquidity provision, and staking—with the qualifier that the exception does not cover rewards or other compensation.
Important Considerations for Taxpayers
Given the complexity of the rules and records required, taxpayers engaging with staking, airdrops, and other digital asset activity should take several key steps:
1. Maintain detailed records of all staking rewards, airdrops, and other income, including the fair market value at receipt and any subsequent dispositions. This is critical to substantiate basis and timing.
2. Consult with a tax advisor or professional experienced in cryptocurrency tax to ensure compliance and optimize tax positions.
3. Note that the IRS has a history of pursuing cryptocurrency non-compliance with penalties and assessments. With the expanded reporting, the IRS is solidifying its position.
4. Consider the tax implications of staking through investment or grantor trusts, as new IRS guidance provides a safe harbor to continue staking without losing grantor trust status, provided certain conditions are met.
The final regulations do not change that cryptocurrency owners have always owed tax on sales or exchanges. However, the updated reporting will capture a more comprehensive view of activity for the IRS.
Looking Ahead
Calls continue from some market participants and experts for further simplification and unification of the tax rules for staking and other on-chain activities. The current rules still create heavy compliance and record-keeping burdens for many taxpayers.
As the rules evolve, taxpayers will need to monitor new guidance closely and follow current advice on reporting. At press time, these are the regulations in force, against which further updates must be measured.
With implications extending to both the crypto realm and broader investment, taxpayers and practitioners alike will need to absorb the latest from the IRS and respond carefully in these still-emerging regulations.
