The sheathed woodtuft (Kuehneromyces mutabilis) is an excellent and abundant edible mushroom that many people avoid due to fear of confusing it with the deadly funeral bell (Galerina marginata). However, these two species are not as similar as often believed, and they can be reliably told apart without a degree in mycology. Both are wood-decaying fungi and may grow in the same places at the same time, so careful identification is still important—especially for beginners who are not yet familiar with the full set of identifying features. First, we’ll look at the sheathed woodtuft, followed by the funeral bell.
Sheathed woodtuft usually grows in clusters. The largest groups can contain over a hundred fruiting bodies. Despite its name, it can grow on wood other than birch. In the photo, it appears to grow directly from the ground.
It is generally larger and sturdier than the funeral bell, though both species can vary in size from tiny to large.
The cap is toffee- or caramel-brown and hygrophanous, meaning its color changes with moisture. Some say it looks like a fried egg.
The stem has a ring and is covered in brownish scales below the ring. As the mushroom ages, the ring may disappear almost completely, and the stem may darken so much that the scales are no longer visible. The stem flesh is tough even in relatively young specimens, so only the caps are recommended for cooking.
In very young mushrooms, the gills are covered by a thin veil that later breaks and forms a ring on the stem. The gills are slightly decurrent and pale at first, later turning brown from the spore dust. The spore color is most visible on the ring in younger mushrooms (see photo).
The smell is pleasantly spicy, and the taste is mild.
The funeral bell (Galerina marginata) is common but usually less abundant than the sheathed woodtuft. It rarely forms large clusters with dozens of mushrooms. It prefers coniferous wood but can also be found on deciduous trees.
The cap is warm brown and hygrophanous with a translucent-striate margin. It may be evenly brown or have a darker center, just like its lookalike. When dry, the cap can appear evenly light brown.
The stem is thin, fragile, and has a ring, though the ring is much less distinct than in the sheathed woodtuft—often barely visible and stuck to the stem. The stem is silky-fibrous, but this texture can disappear when touched. The base color of the stem is dark brown.
In very young specimens, the gills are also covered by a delicate veil. The gills are straight-attached and fairly crowded.
The funeral bell has a mild smell or none at all. The mushrooms in the photo had almost no scent. Because smell is subjective and varies between individuals, it cannot be used to reliably distinguish these two species.
The taste is also mild (but remember: if you taste a raw mushroom, always spit it out and rinse your mouth thoroughly!).

Sheathed Woodtuft.

Sheathed Woodtuft.

Sheathed Woodtuft.