XRP Staking: Sweaters, Taxes, and the IRS Face-Off

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  • Schwartz says XRP staking rewards should only be taxed when sold, not when you’re just sitting there knitting your digital sweater.
  • He’s like, “Newly minted rewards? Taxed at sale. Transferred tokens? Taxed when received. It’s not rocket science, IRS.”
  • Meanwhile, the IRS is like, “Nope, you owe us the second you get those tokens. Revenue Ruling 2023-14 says so.”

David Schwartz, Ripple’s former CTO (aka the guy who probably has more XRP than your life savings), just reignited a debate hotter than a blockchain during a crypto winter. The topic? How to tax staking rewards if XRP Ledger ever decides to get into the staking game. Spoiler: it’s as messy as a reality TV breakup.

During a chat with crypto tax expert Clinton Donnelly (yes, that’s a real job now), Schwartz dropped some wisdom about whether staking rewards should be taxed before you even think about selling them. Because, you know, the IRS needs more ways to make our lives interesting.

The Knitted Sweater Theory of XRP Staking

Schwartz’s take? It’s all about how these rewards are made. If they’re freshly minted (like a brand-new sweater you just knitted), they shouldn’t be taxed until you sell them. But if they’re just being handed over like a pre-owned sweater from your aunt, then yeah, tax time is now.

He said, “If the staking rewards are created by the staking process, it’s just like knitting a sweater for sale. No tax until you sell the sweater.” And honestly, who doesn’t love a good sweater analogy?

So, same logic should apply to XRP staking rewards. Unless the IRS decides sweaters are now taxable the moment you finish the last stitch.

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

This whole thing basically draws a line in the sand between how you get your tokens. Some protocols hand out existing tokens, which the IRS says is an instant tax event (thanks, guys). But Schwartz argues that if the tokens are freshly minted from XRP staking, they’re like new property, and taxes should wait until you sell.

It’s a neat theory, but let’s see how it holds up when the IRS comes knocking.

XRPL Upgrades: The Staking Dream

Let’s be clear: XRP Ledger doesn’t do staking right now. It’s not a proof-of-stake network, so you can’t just stake your XRP like you would on Ethereum. Schwartz was basically brainstorming what could happen if XRPL ever decides to go that route. You know, hypothetical stuff that keeps crypto lawyers up at night.

His point? Whether these rewards are taxed depends on if they’re brand new or just payment for a service. It’s a critical question, especially if validators start handing out token rewards like candy.

If XRPL ever does upgrade to include staking, these legal theories will be put to the test faster than you can say “audit.”

IRS Rules: The Fun Police of Crypto

Right now, the IRS is like the strict teacher who won’t let you pass notes in class. Revenue Ruling 2023-14 says you owe taxes the moment you get those tokens. Full dominion? More like full drama.

This directly clashes with Schwartz’s “sell first, tax later” plan. The government wants its cut now, while Schwartz is like, “Chill, we’ll pay when we sell.” It’s a recipe for a regulatory showdown that no one asked for.

The crypto world desperately needs clarity on this, but let’s be real-when has the IRS ever made anything simple?

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2026-05-29 03:02