The meteoric rise of Proof-of-Stake (PoS) systems in 2021 have put a spotlight on “staking,” a process where users “stake” their crypto assets to become a validator of blocks within a PoS network. Stakers, however, face an uncertain tax regulatory landscape with respect to the taxation of their activities on PoS systems. Should tokens that stakers receive as rewards for validating blocks be treated as ordinary income? When should the rewards taxed, upon receipt or when the tokens are ultimately sold? Unfortunately, the IRS has offered limited guidance to answer these and other fundamental questions. Drawing on Notice 2014-21, the only significant IRS guidance on cryptocurrencies issued to date, this blog posting will offer a roadmap for stakers on how their activities should be taxed.
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