IRS Faces Mounting Pressure to Overhaul Crypto Staking Tax Rules

Lawmakers and industry participants are intensifying calls for the Internal Revenue Service to reform its contentious taxation framework for cryptocurrency staking rewards. Senator Todd Young has formally urged Treasury Secretary Janet Yellen and Acting IRS Commissioner Scott Bessent to revise 2023 regulations that impose tax liabilities on unrealized staking gains—a policy critics argue creates undue burden for digital asset holders.

The current system forces taxpayers to declare income from volatile staking rewards before conversion to fiat currency, effectively taxing paper gains. This approach complicates financial planning for both individuals and legislators attempting to project tax revenues from digital asset legislation. Market participants advocate for taxation only upon disposal of staking rewards through sale or exchange.

Regulatory scrutiny has amplified following the IRS's Revenue Procedure 2025-31, which permits institutional crypto products like trusts and ETFs to engage in staking while maintaining preferential tax treatment. The lack of clear guidance for retail participants has created an uneven playing field, fueling demands for comprehensive policy reform.