What's Happening?
Philipp Behrendt, a Principal at Hochman Salkin Toscher Perez P.C., has published two articles in the Journal of Tax Practice & Procedure addressing significant developments in cryptocurrency tax litigation. The articles, featured in the Summer and Fall
2026 issues, focus on two critical areas of tax controversy: the deductibility of cryptocurrency scam losses and the taxation of newly created digital assets, including staking rewards. The first article, 'Crypto Scam Losses Are Heading to Court,' examines the challenges taxpayers face in claiming theft-loss deductions under IRC § 165, particularly after the Tax Cuts and Jobs Act limited personal theft loss deductions. It analyzes legal requirements for these deductions, such as establishing theft under state law, demonstrating profit motive, and determining the appropriate deduction year. The second article, 'New Tokens, Old Tax Law: Crypto Before the Courts,' explores when receiving newly created cryptocurrency constitutes taxable income, examining how traditional tax concepts like realization and receipt apply to blockchain transactions, with particular attention to staking rewards and cryptocurrency received through Bitcoin hard forks.
Why It's Important?
These articles are crucial for taxpayers, practitioners, and the IRS as they navigate the complex and evolving landscape of cryptocurrency taxation. The increasing number of cryptocurrency-related frauds means that the deductibility of scam losses is a significant financial concern for many individuals, and the legal interpretations discussed will shape how these losses are treated for tax purposes. Similarly, the taxation of new digital assets like staking rewards directly impacts how investors and participants in blockchain networks account for their earnings, potentially leading to substantial tax liabilities or refunds. The legal precedents set in the cases examined (e.g., Vaia v. United States, Fry v. Commissioner, Caputo v. Commissioner for scam losses, and Paschall v. Commissioner, Jarrett v. United States, Rogovy v. Commissioner for new tokens) will have far-reaching implications for the entire digital asset ecosystem, influencing investment decisions and compliance strategies. The articles highlight the ongoing struggle to apply existing tax law to novel technological advancements, creating uncertainty and the need for clear legal guidance.
What's Next?
As these cases progress through the courts, their outcomes will significantly influence future cryptocurrency tax enforcement and litigation. Taxpayers and their advisors will closely watch for judicial interpretations regarding the characterization of transactions, income recognition, and deduction availability for digital assets. The IRS may issue new guidance or update existing regulations based on these court decisions, aiming to provide clarity and ensure compliance in the rapidly evolving crypto space. Furthermore, the need for expert testimony and a deep understanding of blockchain technology in tax litigation will likely increase, as highlighted by Behrendt. Practitioners will need to stay abreast of these legal developments to effectively advise clients on managing their cryptocurrency tax obligations and navigating potential controversies. The ongoing dialogue between traditional tax law and emerging digital asset concepts will continue to shape the regulatory framework for cryptocurrencies in the U.S.
Beyond the Headlines
The issues explored in Behrendt's articles underscore a fundamental challenge in modern taxation: how to apply established legal frameworks to entirely new forms of economic activity. The debate over whether cryptocurrency staking rewards are income upon receipt or only upon sale, or how to classify losses from sophisticated digital scams, touches upon core principles of property, income, and theft in a digital context. This legal evolution reflects broader societal shifts towards digital economies and highlights the need for tax law to adapt without stifling innovation. The articles also implicitly raise questions about consumer protection in the crypto space, as the prevalence of scams necessitates legal mechanisms for victims to recover losses, including through tax deductions. The outcomes of these cases will not only define tax liabilities but also contribute to the legal legitimacy and regulatory maturity of the cryptocurrency market in the U.S.
