A Cardano holder named Mr. Paschall earned $33,354 in staking rewards in a single year without selling a single token, without moving a dollar into his bank account, and without doing anything more than leaving his crypto parked on an exchange. He reported none of it as income. The IRS disagreed, and in June 2026 the U.S. Tax Court sided with the IRS in the first case to actually decide, on the merits, whether staking rewards are taxable the moment you receive them.
If you hold or plan to hold staked crypto — Cardano, Ethereum, Solana, or any other proof-of-stake token — this ruling is the closest thing the tax system has to a rulebook, and it did not go the way a lot of stakers hoped.
What Actually Happened in Paschall v. Commissioner
In 2021, Mr. Paschall held Cardano (ADA) tokens in an account with the digital asset platform eToro. By default, eToro staked customers' Cardano on the network's proof-of-stake blockchain and paid out rewards monthly, also in Cardano. Customers kept between 75% and 90% of the rewards generated; eToro retained the rest as a platform fee. Customers could opt out of staking at any time, and Mr. Paschall never did.
He did not report the staking rewards as income on his 2021 return. The IRS assessed a deficiency, arguing the rewards were gross income under Section 61 of the tax code the moment they landed in his account. Mr. Paschall took the case to Tax Court and represented himself (a "pro se" petitioner), arguing three separate theories for why the rewards shouldn't count as income yet:
- He didn't have real control over the tokens. A temporary platform restriction limited moving the newly staked tokens off eToro to an external wallet, so he argued he lacked the "dominion and control" the tax code requires before something counts as income.
- Staking rewards are like a stock dividend. Just as a 2-for-1 stock split doesn't create taxable income because your proportional ownership of the company hasn't changed, Paschall argued his staking rewards were a proportional increase in his existing holding, not new income — leaning on the century-old Eisner v. Macomber stock dividend doctrine.
- Staking rewards are more like something he made himself. He compared the rewards to a baker who bakes bread — the baker doesn't owe tax on the bread the moment it comes out of the oven, only when it's sold. Paschall argued staking is similarly "self-created property" that shouldn't be taxed until disposed of.
The Tax Court rejected all three arguments.
Why the Court Ruled the Way It Did
On the control question, the court held that Paschall had complete dominion and control the instant the rewards were credited, because he could convert the tokens to cash at any time — the inability to move them to an external wallet didn't matter, since he could still sell them on the platform where they sat. The court leaned on a long-standing principle in tax law: the power to dispose of income is treated as equivalent to owning it, even if you never touch the underlying asset with your hands.
On the stock dividend analogy, the court drew a real distinction. A stock split or stock dividend doesn't increase the total value of what you own — your slice of the pie gets thinner, but the pie is the same size, so nothing has actually been "realized." Staking rewards are different: they increase both the number of tokens and the aggregate value of what you hold. New economic value came into existence and landed in Paschall's account. That's the textbook definition of income.
On the self-created property argument, the court noted that stakers don't actually create anything themselves — the protocol's consensus mechanism generates and assigns the new tokens algorithmically. A staker is closer to someone who is paid a fee for providing a service (validating transactions) than to an artisan who manufactures a physical good from raw materials.
This Isn't the Final Word — But It's the Clearest Signal Yet
A few caveats matter here. Paschall is a Tax Court Memorandum opinion, which means it isn't binding precedent for other cases the way a full Tax Court opinion would be. It's also worth noting that Paschall represented himself, and at least one commentary on the case has flagged that some of the stipulated facts in the record may not have been fully accurate — a risk that comes with going to court without counsel.
There's also unfinished business elsewhere in the courts. Joshua Jarrett, a Tezos staker, has been fighting a parallel battle since 2021: he sued for a refund, the IRS mooted the case by refunding him before a ruling came down, and Jarrett refiled a second suit in 2024 arguing that staking rewards are newly created property that shouldn't be taxed until sold — essentially the same "baker" argument Paschall made and lost. A case called Rogovy v. Commissioner is also working its way through the system. Any of these could eventually produce a conflicting ruling that forces the issue up to a Circuit Court or beyond.
But none of that changes the practical reality for now. The IRS already stated its position in Revenue Ruling 2023-14: staking rewards are includable in gross income in the year the taxpayer gains dominion and control over them, valued at fair market value on the date of receipt. Paschall is the first time a court actually tested that position against a real taxpayer's facts and arguments — and the IRS won on every point. If you're staking crypto and hoping a court will eventually bail you out of reporting the income, the evidence so far points the other way.
What This Means for Your Books
If you stake proof-of-stake crypto — personally or as part of a business — here's the practical takeaway from Paschall:
- Report rewards as ordinary income when you receive them, not when you eventually sell. The taxable event is the deposit into your account, not the later trade or cash-out.
- "Locked" or "restricted" tokens still count. A platform-side restriction on moving tokens to an external wallet does not delay income recognition if you can still sell where they sit — the same logic likely extends to bonding/unbonding periods on other networks, though that specific fact pattern hasn't been tested yet.
- Value each reward at fair market value on the date received. That value becomes your cost basis for the token going forward, so when you eventually sell, you're only taxed again on the gain or loss since receipt — not double-taxed on the whole amount.
- Monthly or even daily rewards mean monthly or daily basis entries. If you're staking actively, you can accumulate dozens or hundreds of small taxable events in a single year, each with its own date and fair-market-value.
That last point is where a lot of stakers get into trouble. Spreadsheets buckle under the weight of hundreds of small, dated crypto transactions, and it's easy to lose track of which basis belongs to which lot once you start staking multiple assets across multiple wallets or exchanges.
Keep Your Crypto Basis Auditable, Not Approximated
Every staking reward is its own dated income event with its own cost basis, and the IRS has now shown it's willing to litigate — and win — cases where that discipline slips. Beancount.io uses plain-text, version-controlled accounting, so every staking reward, its fair-market-value on receipt, and its resulting cost-basis lot are recorded as an explicit, auditable entry rather than a spreadsheet formula you have to trust blindly. Get started for free and keep a clean, defensible record of every token you earn.