David Schwartz has started a new debate over how crypto staking rewards should be taxed if the XRP Ledger ever introduces a native staking system.
The discussion began after Schwartz responded to comments from a crypto tax specialist about whether staking rewards should be taxed before investors sell them. Schwartz argued that the answer depends on how the rewards are created and distributed within a blockchain network.
When the staking rewards are moved from one place to another rather than created, they should be taxed on receipt just like everything else of value is.
If the staking rewards are created by the staking process, then it’s just like if you knitted a sweater for sale. There’s no…
— David ‘JoelKatz’ Schwartz (@JoelKatz) May 28, 2026
Schwartz draws line between minted and transferred rewards
According to Schwartz, staking rewards that already exist and are transferred to users could reasonably be treated as taxable income once received.
However, he said rewards newly created through the staking process itself should be viewed differently. Schwartz compared the process to creating a product by hand, arguing that tax should only apply when the asset is eventually sold.
“If the staking rewards are created by the staking process, then it’s just like if you knitted a sweater for sale,”
Schwartz wrote during the discussion.
“There’s no tax due until you sell the sweater.”
His comments challenge the broader interpretation of current U.S. tax guidance, which generally treats staking rewards as taxable once users gain control over the assets.
Does the XRP ledger have native staking
The debate remains theoretical because the XRP Ledger does not currently support native staking. Unlike proof-of-stake networks such as Ethereum, XRP holders cannot directly stake their tokens on the network to earn protocol-generated rewards.
Schwartz clarified that his remarks were focused on how taxation could work if a staking-like system were ever introduced to XRPL in the future.
At present, XRP holders seeking yield mainly rely on centralized exchanges, lending platforms, liquidity pools, or decentralized finance protocols. Those options often expose users to counterparty risks, smart contract vulnerabilities, and market volatility.
In other news, David Schwartz shed light on why transaction fees on the XRP Ledger can spike sharply during periods of intense usage, as the network recently approached one of its busiest phases in years.
IRS guidance remains central to the debate
The discussion also highlights continuing disagreement over the U.S. Internal Revenue Service’s approach to crypto staking rewards. Under Revenue Ruling 2023-14, the IRS says staking rewards become taxable income once a holder gains “dominion and control” over the tokens, meaning they can transfer, sell, or exchange them.
Schwartz argued that not all staking models should fall under the same rule. In his view, rewards distributed from an existing pool resemble compensation payments, while newly minted rewards may be closer to self-created property.
Schwartz’s concept supports ongoing court cases that are challenging the IRS. Key industry lawsuits, such as the Joshua Jarrett case, argue that taxing newly created assets the moment they are received breaks the U.S. Constitution’s rules about how taxes should be divided. The goal of these cases is to force federal courts to officially change the definition of how newly made digital assets are treated under U.S. tax law.
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