XRP Staking Rewards Face IRS Tax Debate Over Timing and ‘Dominion’

Ripple former CTO David “JoelKatz” Schwartz argues that XRP staking rewards should be taxed only when sold if the staking process creates “newly minted” rewards. He contrasts minted rewards with transferred tokens—distributed rewards may trigger tax earlier when users have control of what they received. The debate follows crypto tax expert Clinton Donnelly and centers on whether staking rewards are taxable before sale. Schwartz’s “sweater for sale” analogy says tax should follow realization, not production. But the IRS is stricter. IRS Revenue Ruling 2023-14 says taxpayers owe tax when they receive staking tokens once they have “dominion and control,” which directly undermines a tax-at-sale approach. The discussion is theoretical for traders because XRPL does not currently support native proof-of-stake staking. Any future XRPL changes to validator reward mechanics could raise regulatory headline risk around XRP staking activity, even if near-term trading impact is limited. Key takeaway for XRP traders: the timing and tax classification of XRP staking rewards remain unresolved under current IRS guidance, so regulatory sensitivity could affect sentiment.