Lawsuit over IRS ruling on crypto staking rewards remains ongoing, but new agency leadership could pivot

In October 2024, a Tennessee couple filed a second lawsuit challenging the IRS’s position that staking rewards are taxable as ordinary income. Revenue Ruling 2023-14. Under that Revenue Ruling, taxpayers must include the fair market value of staking rewards in their gross income at the time they receive them, not when they sell them. They must also pay those taxes at ordinary income rates, which are generally higher than capital gains rates. Although IRS revenue rulings don’t bind the courts, they express the agency’s interpretation of tax law and actively guide its enforcement efforts and taxpayer compliance. With new leadership at the IRS (under Commissioner Michael Faulkender) and the Treasury Department (under Secretary Scott Bessent), the agency’s interpretation of staking rewards as revenue could change, but it has not so far signaled that it will.

Joshua and Jessica Jarrett originally sued the IRS in 2021 before the agency issued formal guidance on staking rewards. Although the IRS refunded their disputed payment, it later reaffirmed its stance in a regulatory ruling in August 2023 concluding that staking rewards must be reported as ordinary income when taxpayers gain dominion and control—meaning when they can sell, transfer, or otherwise dispose of the rewards. The Jarretts’s new lawsuit against the IRS came just before other federal agencies, including the SEC, started to reconsider their approaches to digital assets early in 2025, and it is unclear whether the IRS will follow suit.

Last updated 06/10/2025.