IRS outlines safe harbor for digital asset trusts that stake proof-of-stake tokens
Revenue Procedure 2025-31: Safe Harbor for Investment Trusts and Grantor Trusts Engaging in Digital Asset Staking
The IRS creates a safe harbor that allows qualifying digital asset investment trusts to engage in proof-of-stake staking. If the trust meets strict limits on assets, custody, liquidity, and provider relationships, staking will not change its status as an investment trust or grantor trust. Existing trusts get a nine-month window to amend their agreements to comply.
Scope of the Guidance
The revenue procedure provides a safe harbor under which a trust that otherwise qualifies as an investment trust under §301.7701-4(c) and as a grantor trust under §§671 and 677 may authorize and conduct staking of its digital assets without being treated as a business entity, as long as it satisfies specific conditions on assets, activities, custody, liquidity, and relationships with staking providers.
Existing qualifying trusts may amend their trust agreements within nine months beginning November 10, 2025, to adopt these terms without losing their investment trust or grantor trust status.
Why It Matters
Gives digital asset grantor investment trusts a defined path to participate in proof-of-stake staking without reclassification as corporations or partnerships.
Aligns tax treatment with recent SEC and exchange rules that allow staking within listed digital asset products.
Clarifies that staking rewards can flow through to grantors while maintaining grantor trust treatment.
Provides a limited window for existing trusts to conform their governing instruments to the safe harbor.
Timeline
2014: IRS issues Notice 2014-21, treating digital assets as property for income tax purposes.
May 29, 2025: SEC Division of Corporation Finance issues Statement on Certain Protocol Staking Activities.
July 29, 2025: SEC permits in-kind creations and redemptions for certain crypto ETPs.
September 17, 2025: SEC approves generic listing standards for certain ETPs holding commodities, including some digital assets.
November 10, 2025: Safe harbor amendment period begins; revenue procedure applies to tax years ending on or after this date.
November 10, 2025 to August 10, 2026: Existing qualifying trusts may amend their trust agreements to adopt staking authority consistent with the safe harbor.
Key Facts
Covered entities are trusts under state law that otherwise qualify as:
Investment trusts under §301.7701-4(c), and
Grantor trusts under §§671 and 677.
The safe harbor only applies if:
The trust’s interests are traded on a national securities exchange.
The trust holds only cash and units of a single digital asset type that uses a permissionless proof-of-stake network.
The trust meets SEC disclosure and exchange liquidity requirements, including written liquidity risk policies if less than 85 percent of assets are readily available.
Digital assets must be held by a custodian that controls the private keys and acts on behalf of the trust.
Staking is conducted through one or more unrelated staking providers, accessed via the custodian, under arm’s length terms.
All digital assets must generally be available for staking, subject to:
A liquidity reserve for redemptions, and
Short-term and event-driven exceptions for unstaked holdings.
Staking rewards must consist only of additional units of the same digital asset held by the trust and must be distributed to holders, in cash or in kind, at least quarterly.
Trust digital assets must be indemnified against slashing losses arising from staking provider activities.
Regulatory Framework
The revenue procedure operates within the classification rules in §301.7701-2 and §301.7701-4.
A trust that limits itself to holding specific assets and does not have a power to vary investments can qualify as an investment trust under §301.7701-4(c). Under §§671 and 677, grantor trust treatment applies where the grantor is treated as the owner of the trust income and assets.
Prior revenue rulings define when limited powers, such as short term reinvestments, lease renegotiations, or credit support consents, do not create a power to vary investments. This safe harbor applies those concepts to digital asset staking, in coordination with SEC and exchange rules that govern disclosure, listing, and liquidity for digital asset products.
Issues Addressed
Industry asked:
Whether custodial staking of digital assets by an exchange-traded trust causes the trust to be treated as a business entity rather than an investment trust.
Whether active management concerns arise when the trust or sponsor decides whether, when, and how much to stake.
Whether existing digital asset trusts can amend their trust agreements to permit staking without losing investment trust or grantor trust status.
IRS responded:
Staking, if constrained to a narrow support function for the network and structured within defined limits, can be consistent with investment trust status.
Powers related to staking, liquidity management, and use of custodians and staking providers do not constitute a power to vary investments if they are limited to protecting and conserving trust property.
A time limited amendment window can permit existing trusts to conform their governing instruments without triggering a reclassification.
IRS Reasoning
Investment trust analysis under §301.7701-4(c) turns on whether there is a power to vary the investments of the certificate holders, not on labels attached to specific activities.
The safe harbor restricts trust activities to a narrow list, such as holding digital assets and cash, creating and redeeming interests, paying expenses, liquidating, and directing staking under exchange and SEC constraints, which parallels prior guidance on acceptable limited powers in investment trusts.
Staking is framed as a means to protect and conserve trust property by supporting network security and mitigating concentration risk, rather than as a trading or market timing strategy.
Liquidity reserves and contingent liquidity arrangements are closely tied to exchange listing rules that require assets to be available for daily redemptions, which aligns with preservation of investor interests rather than active portfolio management.
Use of independent custodians and unrelated staking providers, with the trust and sponsor barred from directing validator activities, prevents the trust from becoming an operating business.
Indemnification against slashing and required arm’s length terms for staking arrangements further support the view that the trust is not conducting a business but is managing risk to its passive holdings.
By limiting rewards to additional units of the same digital asset and requiring regular distributions consistent with grantor trust treatment, the safe harbor keeps the income and assets aligned with grantor ownership principles.
In Practice
Digital asset sponsors can design exchange-traded grantor investment trusts that include staking, provided they adhere to the safe harbor conditions on assets, activities, and counterparties.
Existing digital asset trusts have a defined nine month period to amend their trust agreements if they want to add staking in a way that preserves their current tax classifications.
Custodians and staking providers that work with these trusts will need to ensure their contracts and operational controls match the independence, indemnity, and arm’s length requirements described in the safe harbor.
Practitioners will need to test digital asset trust structures against the detailed activity and liquidity limits in this revenue procedure before relying on investment trust and grantor trust classifications.
The IRS leaves open the treatment of other digital asset events such as forks, airdrops, and different staking models, indicating that separate guidance may be needed for those issues.
The Takeaway
Digital asset trusts can now stake proof-of-stake tokens without automatically becoming business entities, but only if they follow a tight set of rules on what they hold, how they use custodians and staking providers, and how they manage liquidity. Anyone structuring or advising these products will need to treat Rev. Proc. 2025-31 as a checklist, not a suggestion.
List of Citations
Rev. Proc. 2025-31: Establishes the staking safe harbor for digital asset investment grantor trusts and sets the amendment window.
§301.7701-2 and §301.7701-4: Provide the classification rules for business entities and investment trusts.
§§671 and 677: Define when a trust is treated as a grantor trust and attribute income and assets to the grantor.
Notice 2014-21: States that digital assets are treated as property for Federal income tax purposes.
Rev. Rul. 75-192, Rev. Rul. 79-77, Rev. Rul. 90-63, Rev. Rul. 2004-86: Illustrate when limited trustee powers do and do not create a power to vary investments for investment trust classification.