KPMG flags tax court ruling on crypto staking rewards as income

Crypto staking rewards are no longer a side issue for tax teams. In Paschall v. Commissioner, the U.S. Tax Court held that cryptocurrency staking rewards received by Alvie N. Paschall and Patricia C. Paschall were includible in gross income under section 61, a reminder that digital-asset tax treatment is still being defined case by case, not settled once and for all.

The case turned on $33,354 in other income tied to staking rewards. Before concessions, the IRS said the Paschalls owed a $24,599 deficiency and a $4,920 accuracy-related penalty under section 6662(a), based on a notice dated February 5, 2024. The court’s memorandum opinion is dated June 4, 2026, and KPMG flagged it as a notable signal for controversy, compliance, and advisory work.

The facts matter for anyone advising clients who hold crypto through an exchange rather than a self-staking wallet. Mr. Paschall was the sole owner of an eToro USA, LLC account that held Cardano tokens on a proof-of-stake blockchain. eToro’s staking service ran by default, customers could opt out, and the platform distributed rewards monthly in additional Cardano tokens while retaining a portion as a fee. Related analyses indicate customers generally received about 75% to 90% of the rewards, depending on the arrangement.

The court rejected the taxpayer’s dominion-and-control argument, saying the tokens could be converted to cash at any time. It also rejected the attempt to treat the rewards like stock dividends under Eisner v. Macomber. That leaves little room, at least on these facts, for the argument that staking is merely an unrealized increase in value rather than taxable income when credited.

The decision is still nonprecedential because it is a memorandum opinion, but it is also the first significant merits ruling directly addressing proof-of-stake rewards. That makes it important beyond the Paschalls. IRS Revenue Ruling 2023-14, issued July 31, 2023, said a cash-method taxpayer must include the fair market value of staking rewards in gross income in the year the taxpayer gains dominion and control. IRS Chief Counsel Advice 202444009 went further, concluding that rewards credited before an account freeze are still includible in the year received even if the platform later fails.

For KPMG professionals, the operational takeaway is immediate. Tax teams will need to keep client memos current on staking, mining, airdrops, and other token events. Private wealth advisers may need to revisit reporting positions for clients using custodians and exchanges. Transaction teams may need to ask whether digital-asset income is reflected properly in diligence and tax provision work. The ruling does not end the debate over crypto taxation, but it does strengthen the compliance case for treating staking rewards as income at receipt, especially when a platform has already credited value the client can access or monetize.