On June 4, 2026, the United States Tax Court issued its decision in Paschall v. Commissioner, T.C. Memo. 2026-46, the first Tax Court merits decision on whether proof-of-stake staking rewards are taxable upon receipt. The court entered decision for the Commissioner of Internal Revenue. The opinion is a non-precedential memorandum opinion and does not bind future Tax Court panels, but it is the first judicial ruling to reach the merits of this question.
The court held that Cardano (ADA) staking rewards received by petitioners Alvie and Patricia Paschall through their eToro USA account constituted gross income under Internal Revenue Code Section 61(a) upon receipt. The court applied the dominion-and-control standard from Commissioner v. Glenshaw Glass Co. and the principle from Hornung v. Commissioner that the power to dispose of income is the equivalent of ownership. Because Mr. Paschall could convert the ADA rewards to cash at any time through the eToro platform, the court found he held unfettered dominion over the tokens at the moment eToro credited them to his account. The staking rewards at issue totalled approximately $33,000 received during the 2021 tax year.
Proof-of-stake token holders receiving staking rewards through US-based custodial platforms face the clearest practical effect. Custodial exchanges operating staking programmes must assess whether their income reporting and information-return practices align with the income-at-receipt position the Tax Court adopted. Individual token holders who have deferred tax on staking rewards on a theory that income does not arise until disposal should review open tax years. Institutional validators and delegated staking service providers should determine whether their reward distribution structures differ materially from the eToro custodial model at issue in Paschall.
The opinion's non-precedential status preserves arguments that future Tax Court panels should rule differently, particularly where staking mechanics differ from the eToro custodial model. The court did not address self-staking where the token holder operates the validator node directly, nor did it address liquid staking derivatives where rewards are represented by a separate token. IRS Revenue Ruling 2023-14 had already adopted an income-at-receipt position for proof-of-work and proof-of-stake rewards. Paschall aligns with that ruling but does not resolve questions the Revenue Ruling left open.
Licentium advises clients on crypto tax compliance and regulatory strategy and can connect clients to specialist tax counsel in the US and relevant jurisdictions. Crypto asset holders, exchanges, and institutional staking providers assessing their position following Paschall may benefit from a review of open tax years, platform reporting obligations, and cross-border treaty implications. Work we undertake includes crypto tax risk assessment, digital asset classification analysis, IRS compliance strategy, cross-border crypto tax advisory, and digital asset tax reporting frameworks.
Source: United States Tax Court, Paschall v. Commissioner, T.C. Memo. 2026-46, 4 June 2026