Tax Bytes: Week of June 8, 2026

Tax developments

Staking a claim: Tax Court holds cryptocurrency staking rewards as taxable upon receipt 

On June 4, 2026, the US Tax Court issued Paschall v. Commissioner, T.C. Memo. 2026-46, holding that cryptocurrency staking rewards are includable in gross income upon receipt at their fair market value. The decision is the first in which a court has reached the merits on whether staking rewards are taxable. Notably, the court grounded its holding in section 61(a) and Glenshaw Glass but declined to rely on the IRS’s staking guidance in Revenue Ruling 2023-14. 

Mr. Paschall held Cardano, a proof-of-stake cryptocurrency, through an account with a digital asset platform. By default, the platform staked customers’ Cardano tokens, unless a customer opted out, and distributed additional token rewards monthly. Mr. Paschall did not opt-out of the platform’s default staking, nor did he independently operate a staking pool. The rewards, worth a stipulated $33,354, were credited to his account automatically in 2021. The IRS proposed adjustments to the taxpayers’ 2021 tax liability after Mr. Paschall failed to receive and report a Form 1099-MISC issued by the platform for the staking rewards.

The court concluded that the staking rewards constituted income to Mr. Paschall. The court rested its decision on section 61(a) of the Code and Commissioner v. Glenshaw Glass Company, 348 US 426 (1955), holding that the staking rewards constituted an accession to wealth, clearly realized, over which Mr. Paschall had complete dominion and control, as he could “convert the tokens to cash at any time.”

Mr. Paschall, representing himself pro se, had presented various legal theories as to why the staking rewards should not be included in his gross income upon receipt. Among these, (i) he argued that he did not possess dominion and control over the staked tokens sufficient for them to constitute income because he was restricted from transferring the Cardano tokens to another wallet; (ii) he analogized the staking rewards to nontaxable pro rata stock dividends, which generally are not taxable income upon receipt; and (iii) he argued that the rewards were “self-created property,” only taxable upon sale. Ultimately, the court found the facts distinguishable from these theories.

The IRS had relied on Revenue Ruling 2023-14, which concluded that staking rewards received by a cash-method taxpayer is includable in gross income for the tax year in which the taxpayer gains “dominion and control” over the rewards. However, the court noted that its decision did not rest on the ruling.

Paschall marks the first decision by a court on the merits of staking rewards. Two features temper the decision’s reach: (1) Paschall is a memorandum opinion in a fully stipulated pro se case in which the court noted a lack of expert testimony hampered its analysis; and (2) the taxpayer was a passive participant whose tokens were staked by a digital asset platform, not a personal validator. However, Paschall signals that the Tax Court is aligning itself with the IRS’s longstanding position that staking rewards are taxable upon receipt, though reaching that conclusion independently of IRS guidance.

Separately, Congress is considering legislation regarding the taxation of digital assets. Under one proposal, rewards from staking activity would be taxable on the sale of the reward, rather than upon receipt, which, if enacted, would effectively overrule the decision in Paschall for future taxable years.

Additional Section 892 proposed regulations to provide transitional relief

In December 2025, Treasury and the IRS issued proposed regulations under Code section 892 (Prior Proposed Regulations) addressing the taxation of foreign government investment income in the United States. Key provisions included a rebuttable presumption generally treating debt acquisitions as commercial activities and guidance on “effective control” of commercial entities. Our legal alert on the Prior Proposed Regulations is available here.

Treasury and the IRS issued additional proposed regulations under section 892 (Additional Proposed Regulations). Responding to public comments, these regulations would replace the Prior Proposed Regulations’ applicability date (generally, publication as final) with two transition periods - one for debt acquisitions and one for determining effective control. The Additional Proposed Regulations otherwise leave the Prior Proposed Regulations unchanged.

Read our full alert here. 

The IRS strikes back – Recent developments in Kwong and Abdo

Recent developments in Kwong and Abdo confirm that the IRS continues to resist broad interpretations of COVID-19 disaster relief under I.R.C. § 7508A(d). While the Tax Court in Abdo recognized a mandatory 60-day postponement beginning January 20, 2020, the IRS has accepted only that narrow holding and rejected broader claims. The Court of Federal Claims in Kwong allowed expanded relief, but the government has appealed.

The IRS’s Action on Decision and the pending Kwong appeal make clear the agency will continue to defend a restrictive approach, limiting relief to the initial 60-day period and contesting claims for the full COVID-19 disaster period.

Read our full alert here. 

Significant Revenue Procedure offers flexibility in corporate letter rulings

The IRS has taken oscillating positions on issuing corporate letter rulings on isolated issues in the context of a larger, integrated transaction. Since 2024, taxpayers have been required to request a letter ruling regarding an entire transaction, which made the letter ruling process more time-consuming and costly. With Rev. Proc. 2026-21, the IRS will allow taxpayers to request letter rulings on more discrete, “significant issues” within larger transactions. This move offers flexibility and should encourage more taxpayers to seek rulings in the corporate space.

Read our full alert here. 

Expanding access to fertility benefits: Tri-Agencies’ proposed rule would create limited excepted benefit for fertility benefits

The DOL, HHS, and Department of Treasury released a Notice of Proposed Rulemaking creating a new limited excepted benefit for certain types of employer-sponsored fertility benefits.

• To qualify, fertility benefits must be separate from the major medical plan (and not otherwise be an integral part of the plan), primarily cover infertility diagnosis/treatment, and be subject to a $120,000 indexed lifetime cap. 
• Employers would need to provide participants with a notice describing the coverage (among other things). 
• The limited excepted benefit exception appears focused on infertility related treatment rather than elective fertility services.

Read our full alert here. 

Recent Eversheds Sutherland Tax insights 

UK Government announces mandatory foreign permanent establishment exemption