31 July 2023. In Revenue Ruling 2023-14 the IRS set out its position: a taxpayer who stakes on a proof-of-stake network and receives validation rewards must include the fair market value of those rewards in gross income in the year they gain dominion and control over them.
Joshua and Jessica Jarrett had been arguing the opposite since 2021, over Tezos rewards. Their contention was that newly created tokens are new property, and that under the realisation requirement they should not be income until sold or exchanged.
The government issued them a refund before the argument was heard. The Sixth Circuit held in 2023 that the refund mooted the case, which left the substantive question undecided. They filed a fresh complaint in October 2024.
So the position is the agency's, it is what the system currently operates on, and it is not settled law. Both halves matter.
Here is what it means in practice. Somebody who received rewards worth $40,000 across a year, and never sold any of them, has an income liability calculated on $40,000.
If those tokens are worth $4,000 by the filing deadline, the calculation does not revisit itself.
The taxable event is the receipt, and the outcome is the sale, and they are not connected. The second one is the only one most people are watching.
F108 describes the United States federal position and nothing else. Treatment differs substantially by country, including on the central question of whether swapping one token for another is a disposal at all.
This is education, not tax advice. Nothing here is a recommendation for your situation, and the correct outcome of this course is that you know which questions to take to somebody qualified in your jurisdiction, and that you arrive with records rather than a shoebox.
Anything with a date in it may have changed. Check the review date in this lesson's provenance block before relying on any specific rule.
Two categories, and everything else is neither
The whole map reduces to two questions.
Did you give up an asset? That is a disposal. You realise a gain or a loss, measured against what you paid for it, which is your basis, and F108-02 is the whole subject of establishing that number.
Did you receive something of value? That is income, at the fair market value on the day you gained control of it. That value also becomes your basis in the thing you received, which is the connection people miss.
Everything else is neither.
The map
Disposals. Every one of these realises gain or loss.
- Selling for dollars or any other currency
- Swapping one token for another. The single most commonly missed event. No currency is involved and it is still a disposal of the first asset at its market value.
- Spending crypto on goods or services. Buying coffee is a disposal of the coffee's worth of crypto.
- Paying a fee in crypto, technically, though the amounts are usually small enough that people ignore them and the aggregate over a busy year sometimes is not.
- Bridging, sometimes, depending on the mechanism and on facts that are genuinely unsettled.
Income at receipt. Value at the moment you gain dominion and control.
- Staking rewards, per the autopsy
- Mining rewards
- Payment for work
- Most airdrops, when you can control them
- Interest or yield from a lending arrangement
- Referral and promotional payments
Neither.
- Buying with currency. You have exchanged one thing for another at cost; nothing is realised.
- Holding, regardless of how far the price moves.
- Moving your own assets between wallets you control. A transfer is not a disposal. Note that this is exactly the movement that produces the course autopsy, because a broker seeing an inbound transfer has no idea what you paid.
- Sending a gift, in most cases, though this has its own rules and thresholds.
Why the swap rule catches people
Somebody who has never sold anything for dollars, and who thinks of themselves as not having realised anything, can easily have dozens of disposals.
Each swap is: dispose of asset A at its market value, acquire asset B at that same value as its new basis. Do that forty times across a year and you have forty separate calculations, each needing the value of both sides at the moment it happened.
This is why the record habit in F108-04 is not administrative tidiness. A busy year on a decentralised exchange generates more taxable events than most people's entire financial life, and none of them produced a statement.
Take the autopsy's shape and make it concrete. Illustrative rates, and tax rates vary enormously by person and jurisdiction.
You receive staking rewards through the year, and the price falls as you do.
| Quarter | Tokens received | Price at receipt | Income recognised |
|---|---|---|---|
| Q1 | 100 | $120 | $12,000 |
| Q2 | 100 | $90 | $9,000 |
| Q3 | 100 | $60 | $6,000 |
| Q4 | 100 | $30 | $3,000 |
Total income recognised: $30,000. That is the figure the return reports, and it is fixed by the four moments of receipt.
Now the filing deadline arrives and the token is at $20.
Value of everything you hold: 400 x $20 = $8,000
At a combined marginal rate of, say, 30 percent, the tax on that income is:
$30,000 x 0.30 = $9,000
You owe $9,000 on holdings worth $8,000. Selling every token you received does not cover the bill on receiving them.
Two things follow, and the second is the useful one.
First, the arithmetic is not a punishment or a bug. It is what "income at receipt" means, and it would work identically if you had been paid in company shares that then fell.
Second, and this is the part to act on: you have an unrealised capital loss sitting inside the same position. Your basis in those 400 tokens is $30,000, the total income you recognised. At $20 they are worth $8,000, so disposing of them realises a capital loss of $22,000.
Whether and how quickly that loss can be used against the income is a real question with real limits, and it is precisely the kind of question to take to a professional rather than to a forum. What matters here is knowing the loss exists, because somebody who does not know it exists will never ask.
I have not cashed out to my bank account, so I have not triggered anything.
This is the single most expensive misunderstanding in this course, and it is entirely reasonable, because it is how almost every other asset most people own behaves.
The fiat off-ramp is not the taxable event, and it is not any part of the definition. Two categories of thing have already happened by the time you reach it: every swap along the way was a disposal, and everything you received was income at receipt.
The reason this belief persists is that the off-ramp is the only moment that produces a familiar artefact, which is money arriving in a bank account. Everything before it happened without a statement, without a notification, and often without a number you ever looked at.
The pattern to notice is that this is F101-01 wearing different clothes. The chain executes what you instructed, whether or not you understood it, and the record exists whether or not you read it. Tax works the same way and it has a longer memory.
What to do now
Go through your own history and count. Not precisely; just enough to know the shape.
How many swaps? How many things did you receive without buying them? Did you spend any? Did you bridge?
Most people doing this exercise honestly discover a number substantially larger than zero, and that number is the input to everything else in this course.
Two questions cover the whole map: did you give up an asset, which is a disposal measured against basis, and did you receive value, which is income at its fair market value on the day you gained control. A swap between two tokens is a disposal in the US even with no currency involved, which is how people who have never cashed out accumulate dozens of events. Income at receipt is fixed at the moment of receipt and does not revisit itself, so $30,000 of rewards can produce a $9,000 bill against $8,000 of holdings, with a $22,000 capital loss sitting inside the same position that you will never ask about if you do not know it is there. And moving your own assets between your own wallets is not a disposal, however it looks to a broker.