The U.S. Internal Revenue Service has updated its safe harbor allowing qualifying investment and grantor trusts to stake proof of stake digital assets without jeopardizing their federal income tax classification.
Summary
- The IRS has updated its safe harbor allowing qualifying investment and grantor trusts to stake proof of stake digital assets without jeopardizing their federal income tax classification.
- Eligible trusts must meet conditions covering exchange listing, SEC disclosures, custody, staking providers, liquidity management and the distribution of staking rewards.
- Staking rewards must consist of the same digital asset held by the trust, with equivalent units or cash proceeds distributed to holders within the required timeframe.
- Existing trusts have six months from Oct. 6 to adopt the revised requirements before they can no longer rely on the previous 2025 safe harbor.
- The guidance does not create a general tax exemption for staking income or determine federal tax treatment for issues outside the safe harbor’s stated scope.
According to Revenue Procedure 2026-20, issued on Oct. 6, the safe harbor applies to eligible trusts holding digital assets on permissionless networks that use proof of stake to validate transactions. The procedure replaces Revenue Procedure 2025-31, which introduced the original framework in November 2025.
The IRS said trusts that meet all requirements under the new procedure can authorize staking and stake their digital assets while continuing to qualify as investment trusts under Section 301.7701-4(c) and as grantor trusts for federal income tax purposes.
The guidance is limited to the classification of qualifying trusts and does not provide a general tax exemption for staking income. The IRS specifically said no conclusions should be drawn about federal income tax issues that are not expressly addressed by the procedure.
IRS staking safe harbor sets conditions for qualifying trusts
Eligibility is limited to arrangements formed as trusts under applicable state law that already qualify as investment trusts and grantor trusts before meeting the safe harbor requirements.
Interests in the trust must trade on a national securities exchange, while its staking disclosures must be filed with the Securities and Exchange Commission through an effective registration statement. The trust must comply with the rules of the exchange where its interests are listed and maintain required liquidity risk policies.
Assets are restricted to cash and units of a single type of digital asset operating on a permissionless proof of stake network.
One or more custodians must hold the digital assets at addresses they control, with only those custodians able to access the associated private keys. The IRS said the trust retains ownership of the assets for federal income tax purposes even while they are staked.
Staking must be carried out through custodians working with one or more staking providers. The trust and its sponsor must remain unrelated to the staking provider, while contracts and the allocation of rewards between providers and custodians must be negotiated on arm’s length terms.
Trusts, sponsors and custodians cannot control the staking provider’s operations beyond directing when eligible assets should be staked or unstaked.
The procedure treats staking as a way of protecting and conserving trust property when it helps reduce the risk of one party or coordinated group gaining majority control over staked assets and carrying out transactions that could hurt their value.
Liquidity rules allow some assets to remain unstaked
Qualifying trusts generally have to make their digital assets available for staking, but Revenue Procedure 2026-20 creates exceptions for liquidity and certain operational needs.
A trust can keep part of its holdings unstaked when its trustee or sponsor reasonably determines that a liquidity reserve is needed to comply with exchange requirements governing redemptions. Assets released from the reserve must be made available for staking again as soon as reasonably possible.
Temporary unstaked holdings are permitted when assets are being sold to cover trust expenses, cash distributions or redemptions. Similar treatment applies when digital assets are contributed for the creation of trust interests, distributed to holders, purchased with contributed cash or received as staking rewards.
Other exceptions cover liquidation, changes in applicable laws or regulations and steps taken to protect assets against potential systemic vulnerabilities in a network protocol, staking smart contract or validator software.
The framework permits contingent liquidity arrangements when needed to deal with an event that could otherwise prevent the trust from meeting redemption requests. Such arrangements can include facilities for borrowing cash or agreements involving purchases or sales of digital assets.
Transactions that the trust treats as borrowing digital assets for federal income tax purposes do not qualify as contingent liquidity arrangements under the safe harbor.
Slashing risk is covered separately. A trust must be indemnified against losses caused by activities or events that were reasonably within the staking provider’s control or ability to protect against.
Staking rewards face distribution requirements
Rewards generated through staking must consist of additional units of the same digital asset already held by the trust.
After trust expenses, an equivalent number of units must be distributed to holders in kind, sold and distributed as cash, or handled through a combination of the two methods. Distributions must be made proportionally based on holders’ interests in the trust.
The IRS requires those distributions to take place no later than 60 days after the end of the calendar quarter in which the trust gains control over the relevant staking rewards.
Several U.S. crypto funds have been moving toward similar structures as staking becomes part of exchange traded products holding proof of stake assets.
Fidelity, for instance, disclosed plans in September to introduce Ethereum staking for its FETH fund, which held roughly $898 million at the time. As crypto.news previously reported, Fidelity’s proposed structure relied partly on Revenue Procedure 2025-31 to preserve the trust’s federal tax classification while staking ETH.
Morgan Stanley had earlier amended proposed Ethereum and Solana funds to include staking structures under which 95% of staking rewards would remain in the trusts, with the remaining 5% going to service providers.
BlackRock’s staking Ethereum product has taken another approach. Its ETHB fund routes roughly 70% to 95% of its ETH into validators operated by Figment and other providers, while approximately 82% of gross staking rewards are passed through to shareholders.
Grayscale has meanwhile proposed quarterly cash distributions from staking rewards generated by its Ethereum and Solana exchange traded funds. Its July filings said payments would depend on rewards earned as well as operating expenses, fees and applicable tax treatment.
Existing trusts get six months to adopt the new IRS rules
Revenue Procedure 2026-20 follows requests for more detail after the Treasury Department and IRS introduced their first staking safe harbor in November 2025.
Questions raised after the earlier guidance covered which proof of stake protocols qualified, the use of multiple custodians, slashing protection, SEC disclosure requirements, treatment of staking rewards and the ability to unstake assets ahead of distributions.
The new procedure permits trusts to use multiple custodians and spells out when assets can temporarily remain unstaked. It provides rules for liquidity arrangements and narrows the slashing indemnification requirement to activities or events reasonably within the staking provider’s control or ability to protect against.
Existing trusts have six months from Oct. 6 to implement the new requirements. Changes can include amendments to trust agreements authorizing staking, revisions to processes and procedures, or both.
Trusts that comply with Revenue Procedure 2025-31 can continue relying on the earlier safe harbor during the six month transition period. Once that period ends, the IRS will no longer allow trusts to rely on the 2025 procedure.
Revenue Procedure 2026-20 applies to tax years ending on or after Oct. 6, 2026.
The IRS cautioned against extending the guidance beyond its stated scope. The procedure does not determine whether staking income is effectively connected with conducting a U.S. trade or business, whether it constitutes unrelated business taxable income, or how other digital asset transactions such as forks and airdrops should be treated for federal income tax purposes.
