Why I believe Ethereum Validators Do Not Owe Income Tax Until Exit

Pre-req. I am from the USA and am speaking from my knowledge of USA taxes. This may or may not apply to your country. And I may or may not be correct. I am simply sharing my inferences and asking for thoughts on this matter. Seek out a local tax professional.

I am specifically speaking about validators paying income tax (I am not talking about capital gains tax). And am trying to figure out at what point does a tax liable event occur for a solo ethereum staker.

Here is the IRS crypto guidelines I am referencing. https://www.irs.gov/pub/irs-drop/rr-19-24.pdf

In previous posts I argued that ethereum validators do not owe taxes until after eth2 is operational (after the merge, when withdrawals are enabled) because they do not have possession of the crypto they earned until then. This is in line with the IRS's guidelines on hard forks and airdrops. That a tax liable event does not occur until you have dominion control over the funds. In other words, you do not owe taxes until you receive money.

To expand on this, I am now arguing/inferring/questioning that a validator does not receive the eth earned from staking until they exit the deposit contract. Either voluntarily or involuntarily. Therefore there has been no realized income until exit of the contract.

Using the text from the link I provided...

"A taxpayer does not have gross income under § 61 as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency."

I am not sure if this is addressing hardforks specifically or crypto/income in general. In general does a tax event not occur until taxpayer receives funds? I would argue yes... you do not pay taxes on an IOU until the event of money being received occurs. A bank giving a loan does not owe taxes on the loan until money is received. A business who does work in advance doesn't have a tax liability until the job he did is paid for (partially or impartially).

The reason I am referencing IOUs and debt is because that is how I am viewing ethereum staking rewards. It is my view that the ethereum staking rewards do not exist until exit of the deposit contract. The eth earned from staking is not available to be bought/sold on the market, nor available for the user to trade until after exit of the deposit contract. And a staker does not have control of this eth, until the deposit contract is exited. That upon a validators exit (either voluntary or involuntary) the contract executes code to create that eth and pay it to the validator's address. This view that I am taking is relying heavily on the withdrawal contract to execute a "create and transfer" command.

Thereby, the eth in question is neither created nor received until the exit code is completed.

Additional text from the IRS guidelines:

"Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income."

The eth staking rewards are not clearly realized until completion of the deposit contract's exit code, because of what I said above. That the eth is not created nor received until exit. And that the IRS does not classify income that you do not receive as taxable income.

Additionally, that complete dominion does not occur (even after withdrawals are enabled) because the validator is still subject to involuntary exits. Which would occur due to a buggy client or a failing ISP or power outage. Therefore, due to these events, which is completely out of the control of the person/entity running the ethereum validator, that person/entity does not have complete dominion.

This is something I believe should be addressed by the IRS (or whatever tax authority your local country has) because the implications are massive.

This would mean that a person running multiple validators does not owe income tax on the eth received from any validators until they are exited from staking.

For example, if Johnny starts running 10 validators in 2021. He can choose to exit only one validator in 2023 and have a income tax liability for only that one validator. Leaving his other 9 validators with deferred income tax until they are exited.

Let's say that one validator is exited per year. He will have deferred income tax on his last validator for 10 years.