Revenue Rulings
Rev. Rul. 2023-14, 2023-33 IRB, 07/31/2023, IRC Sec(s). 61

If a taxpayer that uses a cash method of accounting (cash-method taxpayer) stakes cryptocurrency native to a proof-of-stake blockchain and receives additional units of cryptocurrency as rewards when validation occurs (validation rewards or rewards), must the taxpayer include the value of the rewards in the taxpayer's gross income and, if so, in which taxable year?

Transactions in M, a cryptocurrency, are validated by a proof-of-stake consensus mechanism. On Date 1, Taxpayer A , a cash-method taxpayer, owns 300 units of M. A stakes 200 of the units of M and validates a new block of transactions on the M blockchain, receiving 2 units of M as validation rewards. Pursuant to the M protocol, during a brief period ending on Date 2, A lacks the ability to sell, exchange, or otherwise dispose of any interest in the 2 units of M in any manner. The following day, on Date 3 , A has the ability to sell, exchange, or otherwise dispose of the 2 units of M. 2

A consensus mechanism is a set of protocols by which nodes reach agreement on updates to the blockchain. One consensus mechanism is commonly referred to as proof-of-stake. In a proof-of-stake consensus mechanism, persons who hold cryptocurrency may participate in the validation process by staking their holdings, if they hold the requisite number of units of a particular cryptocurrency. Persons may also participate in the validation process by staking their holdings through a cryptocurrency exchange. In a proof-of-stake consensus mechanism, validators may be selected by the protocol for the blockchain associated with the specific cryptocurrency based on a variety of factors including the number of coins or tokens staked. These validators confirm transactions and add blocks to the blockchain in accordance with the protocol. If a validator is chosen by the protocol and validation is successful, the validator will receive a reward. If a validator is chosen by the protocol and validation is unsuccessful, the staked units may be subject to penalty in the form of "slashing," a process by which the staked units, or a portion thereof, are forfeited.

The 2 units of M represent A's reward for staking units and validating transactions on the M blockchain. On Date 3 , A has an accession to wealth as A gains dominion and control through A's ability, as of this date, to sell, exchange, or otherwise dispose of the 2 units of M received as validation rewards. Accordingly, the fair market value of the 2 units of M, as of the date and time A gains dominion and control over the 2 units of M, is included in A 's gross income for the taxable year that includes Date 3.