Phantom Income and the Taxation of New Cryptocurrency Tokens

TAX NOTES FEDERAL, VOLUME 178, JANUARY 30, 2023

12 Pages Posted: 7 Mar 2023

See all articles by Abraham Sutherland

Abraham Sutherland

University of Virginia School of Law

Date Written: January 30, 2023

Abstract

New cryptocurrency staking "reward" tokens are not and should not be taxable when they are created. This article presents the basic economics of cryptocurrency staking and the applicable income tax law. It responds to counterarguments from the New York State Bar Association's Tax Section and other commentators.

Newly created property is never taxable income. Only taxpayer gains should be taxed. It would be doubly tragic if the first-ever breach of the first principle guaranteed the violation of the second principle as well. Staking rewards are not and should not be taxable income. Like all other new property, they will be taxed fairly when sold or exchanged.

Keywords: cryptocurrency, taxation, blockchain, economics, proof of stake, proof of work, Bitcoin, Tezos, staking rewards, block rewards

JEL Classification: E4, E42, E52, G28, H2, H20, H24, H25, K00, K34, L51

Suggested Citation

Sutherland, Abraham, Phantom Income and the Taxation of New Cryptocurrency Tokens (January 30, 2023). TAX NOTES FEDERAL, VOLUME 178, JANUARY 30, 2023, Available at SSRN: https://ssrn.com/abstract=4362822

Abraham Sutherland (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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