- David Schwartz says staking rewards should not always be taxed immediately when created.
- The IRS treats staking rewards as income once users gain dominion and control over them.
- The Jarrett case remains central to the unresolved U.S. staking tax debate.
David “JoelKatz” Schwartz has challenged the idea that crypto staking rewards should always be taxed as soon as they are created. His argument centers on one question: did the reward already exist before reaching the user, or did the network create it through staking?
In a May 28 X exchange with crypto tax adviser Clinton Donnelly, Schwartz said the answer changes how the tax treatment should be viewed. He argued that rewards transferred from an existing pool can reasonably be taxed on receipt, while newly minted rewards raise a different legal question.
Schwartz Draws A Tax Line Between Created And Transferred Rewards
Schwartz’s position is not that staking rewards should avoid tax completely. Instead, he drew a narrower line between rewards that pre-exist and rewards created by the protocol.
If rewards “pre-exist and are transferred” to a staker, Schwartz said taxing them when received is more reasonable. In that case, the user receives property that already existed elsewhere.
But if the staking process itself creates the reward, Schwartz argued that immediate taxation looks harder to justify. He compared that situation to making a product for sale.
Schwartz used the example of knitting a sweater. The maker is not usually taxed when the sweater is created. Tax normally applies when the sweater is sold.
IRS Position Keeps Staking Rewards Taxable At Receipt
The debate runs counter to the current position of the Internal Revenue Service. In Revenue Ruling 2023-14, the IRS said a cash-method taxpayer must include staking rewards in gross income once they gain “dominion and control.”
That means the fair market value of the reward is treated as taxable income when the taxpayer can control it. The IRS also noted that proof-of-stake rewards usually involve newly created units of a network’s native cryptocurrency.
This creates the central conflict in the staking tax debate. Schwartz and supporters focus on creation. The IRS, on the other hand, focuses on control and receipt.
Jarrett Case Leaves Staking Tax Question Unresolved
Notably, the Jarrett case remains the main legal reference point for this argument. Joshua Jarrett argued that Tezos staking used his existing tokens and computing power to create new tokens.
His position was that taxes should apply only when those tokens are sold or transferred. However, the IRS argued the tokens were income when received. Regardless, the case ended without settling the question after the government issued a refund, and courts dismissed it as moot.
Coin Center supports Jarrett’s position, arguing that block rewards are new property. Still, the opposing view remains strong. The Tax Law Center argues that staking rewards compensate validators for services, and deferral could allow some taxpayers to delay or avoid tax indefinitely.
Overall, Schwartz’s comments add a plain-language framing to the dispute. The issue is not whether staking rewards can ever be taxed, but when newly created rewards should enter the tax system.
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