On June 4, 2026, the U.S. Tax Court released a memorandum decision in Paschall v. Commissioner addressing the federal tax treatment of staking, holding that there was taxation on staking rewards credited to Mr. Paschall’s eToro account. The decision is non-precedential, it was argued by the taxpayer pro se, and it was decided on sloppy and incorrect stipulated facts.
The parties stipulated that Mr. Paschall staked tokens using the eToro platform using its staking service and that Mr. Paschall did not himself create new tokens. Both the stipulated facts and the decision are silent as to who was the first owner of the new tokens. No experts were presented to the court, and there was no trial or fact-finding. The court noted in several places that its analysis would have benefitted from additional fact-finding and expert witness testimony.
The taxpayer also theorized in his argument that the staking rewards constituted self-created property. Based on the parties’ stipulation that Mr. Paschall did not himself create new tokens, however, it is no surprise that the Tax Court stated that “[s]takers do not create anything by themselves. Instead, the staked tokens validate transactions on the blockchain. . . . [T]he cryptocurrency’s protocol grants stakers additional tokens.”
This case is a primary example of the adage that “bad facts make bad law.” The stipulations contributed to a misunderstanding of the facts of how staking works and erroneously ascribed agency to a blockchain protocol, which is not a person. To personify the protocol is to ascribe agency to a tool, rather than to the people that use that tool. This underscores the importance of developing facts in the record that accurately reflect the operation of blockchain technology, and not the erroneous facts that were stipulated to here.
When a staker directly creates tokens via staking, he must either operate a validating node, delegate stake weight to a validator, or both. In such cases, the staker is the first owner of new tokens created via the staking process; characterizing the staker as having “received” tokens is a mischaracterization of the basic facts of how staking works.
One thing is clear from this case: This is not the final word on the tax treatment of staking. The IRS has picked its battles on which staking cases to litigate.1 In this case, the Tax Court itself admitted that it did not have a full set of facts on which to opine. There were no expert witness reports. There was no trial. The taxpayer represented himself pro se. Many of the stipulated facts in the record do not accurately capture the facts of staking. And the Tax Court itself stated that its analysis was hampered by the lack of expert testimony.2
1 Indeed, the IRS conceded another staking case, Jarrett v. United States, No. 3:21-cv-00419 (M.D. Tenn. Sept. 30, 2022), which in a related procedural matter the Sixth Circuit described as a “well lawyered case on the [taxpayer’s] side.” Oral Argument at 19:06-20:45, Jarrett, No. 22-6023 (6th Cir. July 26, 2023). See also David L. Forst et al., 180 Tax Notes Federal 1867, “Sound and Fury, Signifying Nothing: Rev. Rul. 2023-14 and Staking” (September 11, 2023).
2 See T.C. Memo 2026-46 at fn 7 and 8.