Why It Matters

A Congressional Research Service released a comprehensive report on September 2, analyzing the judicial and administrative developments shaping the federal tax treatment of digital assets. Authored by Legislative Attorney Milan N. Ball, the report examines how the IRS has applied property-tax principles to cryptocurrency, tokens, and NFTs since 2014, and how recent court rulings and pending congressional legislation are reshaping the landscape.

The central tension: the IRS's incremental guidance framework, codified in part by the 2021 Infrastructure Investment and Jobs Act, now faces pressure from both judicial challenges and legislative proposals that would fundamentally alter how mining, staking, and charitable donations of digital assets are taxed.

A June 2026 Tax Court decision in Paschall v. Commissioner affirmed the IRS position that staking rewards are taxable upon receipt, rejecting arguments that platform restrictions or stock-dividend analogies should defer taxation. Meanwhile, lawmakers have introduced bills that would permit taxpayers to defer income recognition from mining and staking until tokens are disposed of, and exempt widely traded digital assets from qualified appraisal requirements for charitable deductions.

The Big Picture

The IRS has been developing its digital asset tax regime incrementally since 2014. That year, the agency determined that virtual currency would be treated as property rather than currency for federal tax purposes. Seven years later, the Infrastructure Investment and Jobs Act codified a statutory definition of digital asset in the Internal Revenue Code and added information reporting requirements for digital asset transactions.

Notice 2014-21 established that miners must include the fair market value of newly mined tokens in gross income on the date of receipt. If mining constitutes a trade or business, mining income is subject to self-employment taxes. The agency later addressed NFTs through a look-through analysis, treating an NFT as a collectible under federal tax law if the underlying right or asset it certifies is itself a collectible. Collectibles face a 28 percent capital gains rate.

In Paschall v. Commissioner, the U.S. Tax Court ruled that a cash-method taxpayer's staking rewards were taxable upon receipt. The court also rejected arguments that platform transfer restrictions meant no dominion and control over the rewards, that staking rewards resembled stock dividends deferring tax until sale, or that they were self-created property.

Final broker reporting regulations were issued on July 9, 2024, with the IRS subsequently providing transitional relief through multiple notices to ease compliance burdens.

The Bottom Line

Federal lawmakers have proposed legislation to clarify the existing tax treatment of digital assets and alter the tax treatment of digital assets in certain types of transactions. Pending bills would permit taxpayers to defer recognition of income from mining and staking until tokens are disposed of, exempt widely traded digital assets from qualified appraisal requirements for charitable deductions, and address other tax consequences of digital asset transactions.

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