Plenty of people who hold cryptocurrency never sell a single coin. They buy a token, leave it sitting in an account, and watch the balance grow. With some cryptocurrencies, that balance grows on its own. The platform “stakes” the tokens, and new tokens show up in the account every month. The owner does nothing. The tokens just appear.

So here is the question. If you never sell, never cash out, and never even touch those new tokens, do you owe tax on them the moment they land in your account? Or do you wait until you sell, the way you would with a stock that goes up in value?

This matters because the answer decides whether you have taxable income in a year when no cash ever changed hands. The U.S. Tax Court took up the question in Paschall v. Commissioner, T.C. Memo. 2026-46. The case gives us a chance to look at how the tax code treats staking rewards and why the timing of the tax can surprise people who thought they had not done anything to trigger it.

Facts & Procedural History

The taxpayer held a position in Cardano. Cardano is a cryptocurrency that runs on what is called a “proof-of-stake” blockchain.

He held the tokens through an account with a digital asset platform. The platform offered a staking service. By default, the platform staked its customers’ Cardano tokens. Customers could opt out, but if they did, they received no staking rewards.

The taxpayer never opted out. So for the entire year, his tokens were staked. Every month, new Cardano tokens were added to his account as staking rewards. He took no action to receive them. They simply appeared. The new tokens were indistinguishable from the ones he already held. He could sell any of them for cash at any time.

Late in the year, the platform announced it would stop supporting Cardano. From that point on, it restricted his ability to move the tokens to a different account or platform. He could still sell them. He just could not transfer them off the platform until the following year.

The platform issued a Form 1099-MISC reporting about $33,000 in other income from the staking rewards. The taxpayer never saw it. It went to an old address. He first learned of the issue when the IRS sent a notice proposing changes to his return. The IRS then issued a notice of deficiency for about $24,600 in tax, plus an accuracy-related penalty. He petitioned the U.S. Tax Court. After concessions, the only issue left was whether the staking rewards were taxable when he received them.

What Counts as Income Under the Tax Code?

The starting point is Section 61. It says gross income means “all income from whatever source derived.” Courts read that language as broadly as it sounds. The Supreme Court has said Congress meant to use the full measure of its taxing power. When Congress wants to leave something out of income, it says so directly. Absent that, income is income.

The leading case here is Glenshaw Glass. The Supreme Court held that gross income includes any accession to wealth that is realized and over which the taxpayer has complete dominion and control. That phrase, dominion and control, does a lot of work in this area. It is the line between something that is income now and something that is not income yet.

This is not a new provision. The principle that you are taxed on what you have the unfettered right to enjoy goes back decades. The Supreme Court said long ago that income subject to a person’s command, which he is free to enjoy as he sees fit, can be taxed to him whether he chooses to enjoy it or not. So the question in a staking case is not whether the taxpayer sold anything. The question is whether he received something of value that he controlled.

When Does a Cash-Basis Taxpayer “Receive” Income?

Most individuals report on the cash method. Under the cash method, you report income in the earliest year you actually or constructively receive it. Actual receipt is easy to understand. Constructive receipt is the part that trips people up.

You constructively receive income when it is credited to your account, set aside for you, or otherwise made available so that you can draw on it at any time. The money does not have to be in your hand. It has to be within your reach. There is an exception. If your control over the money is subject to a substantial limitation or restriction, you have not constructively received it.

That exception was the taxpayer’s best argument. The tokens were eventually restricted from transfer when the platform decided to drop Cardano. So did that restriction mean he never had real control over the rewards?

The court said no. The staking rewards, once received, were not subject to any sale restriction. He could convert them to cash at any time, just like his other tokens. The restriction the platform later imposed only limited his ability to move tokens to a different wallet. It did not stop him from selling. The court relied on the principle that the power to dispose of income is the equivalent of owning it. A limit on where you can move an asset is not the same as a limit on your ability to cash it out. He had an accession to wealth the moment the rewards hit his account.

Are Staking Rewards Like a Stock Dividend?

The taxpayer also made a more creative argument. He compared staking rewards to a stock dividend. He pointed to Eisner v. Macomber, the old Supreme Court case holding that a pro rata stock dividend is generally not taxable when received. The idea is that if a company issues new shares to every shareholder in proportion to what they already own, nobody is richer. Each shareholder owns the same slice of the same pie. The pie was just cut into more pieces.

It is a clever analogy. If staking rewards just split the existing supply into smaller units without making anyone wealthier, maybe there is no income until a sale. But the court did not buy it.

The reason Macomber worked for the shareholder was that the stock dividend took nothing from the company and added nothing to the shareholder. It did not change anyone’s proportionate interest. The staking rewards were different. They increased the taxpayer’s share of all outstanding Cardano tokens. Not every token holder staked. Stakers had to put their tokens up as collateral and risk losing them. So the rewards did not flow to everyone equally. They flowed to the people who staked and validated correctly. That shifted real value to the taxpayer. He ended up with a larger piece of the pie, not just more slices of the same one.

The taxpayer also argued that Cardano has a fixed total supply, so the rewards were just redistributed from a finite pool rather than newly created wealth. The court rejected the factual premise. Only part of the supply was in circulation. The rest was held in reserve for future rewards. Distributing those reserve tokens increased the supply in circulation and increased the value the taxpayer held.

Are Staking Rewards Self-Created Property?

The last argument was that staking rewards are self-created property. The taxpayer compared the tokens to a baker’s cake or a writer’s book. Products of labor and capital that produce income only when sold. A baker does not owe tax when the cake comes out of the oven. He owes tax when he sells it. Why should staking be different?

The court explained why the analogy fails. Stakers do not create anything themselves. The blockchain’s protocol grants new tokens in exchange for validating transactions. The fact that the tokens may be newly minted does not matter, because the staker is not the one who creates them. And there is a control point that matters here. A baker decides whether and when to bake. The taxpayer was not the owner or operator of a staking pool. He had no power to decide whether the tokens were created or when. He was a passive recipient. That is the opposite of a self-created asset.

What About the IRS Guidance on Staking?

So how does this line up with existing IRS guidance? The IRS issued Revenue Ruling 2023-14, which says staking rewards are included in income in the year the taxpayer gains dominion and control over them. You might expect the court to lean on that ruling. It did not.

The court was careful to say it did not rely on the revenue ruling at all. It cited it only for completeness. Revenue rulings do not bind the court. Their weight depends on how persuasive and consistent they are.

Here the court did not need the ruling. It rested its decision on Section 61 and the dominion and control caselaw. That choice is significant. The taxpayer had argued the ruling could not apply to him retroactively for a year that predated it. The court sidestepped that fight entirely. By grounding the holding in the statute and longstanding case law rather than the 2023 ruling, the court reached a result that does not depend on the timing of the IRS guidance. The retroactivity argument simply did not matter.

So even taxpayers who staked before the ruling came out should not assume the absence of guidance protects them. The income theory the court used was available all along.

The Takeaway

The hard part about cryptocurrency is that the tax can arrive before any cash does. Staking rewards feel like growth in an investment you have not sold. The tax code sees them differently. When tokens are credited to your account and you can sell them at any time, you have received income, and the value on that date is what you report. It does not matter that you never opted in by hand, never sold, and never moved the tokens. If you control them, you are taxed on them. Anyone holding staked tokens should track the fair market value of each reward as it is received and report it, because waiting for a sale that may never come is not the rule. The income is recognized when the reward lands.

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