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. According to Revenue Procedure 2026-20, issued on October 6, 2026, 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 on November 10, 2025, and provides more detailed guidance on staking operations and compliance requirements. The guidance addresses a critical structural challenge for trusts, as the IRS has long been wary of trusts holding "power to vary investments," meaning the ability to actively shuffle what they own in pursuit of profit. Staking raised an awkward question about whether choosing to stake and collecting rewards counted as active management that could jeopardize their tax status.
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. As reported by the IRS, trusts must have interests that trade on a national securities exchange, with staking disclosures filed with the Securities and Exchange Commission through an effective registration statement. The trust must comply with exchange rules 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, with one or more custodians holding the digital assets at addresses they control. Among the 14 detailed requirements that trusts must satisfy to qualify, the trust's interests must be listed on a national exchange, assets must sit with qualified custodians, and the trust needs liquidity policies approved by the SEC, which ties the tax treatment directly to securities regulators' oversight.
Staking must be carried out through custodians working with one or more staking providers, with the trust and its sponsor remaining unrelated to the staking provider. According to the IRS guidance, contracts and reward allocation 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 IRS answer through this guidance is that compliant staking is treated as a property-conservation activity, keeping it on the passive side of the line and preserving investment-trust status and grantor-trust status under IRC §§ 671–677. Staking rewards must consist of additional units of the same digital asset already held by the trust, with equivalent units or cash proceeds distributed to holders within 60 days after the end of the calendar quarter in which the trust gains control over the relevant staking rewards. The trust cannot simply pile up rewards and treat them as a war chest.
Qualifying trusts generally must make their digital assets available for staking, but Revenue Procedure 2026-20 creates exceptions for liquidity and operational needs. As reported by the IRS, 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. Temporary unstaked holdings are permitted when assets are being sold to cover trust expenses, cash distributions or redemptions. The framework permits contingent liquidity arrangements when needed to deal with events that could prevent the trust from meeting redemption requests, including facilities for borrowing cash or agreements involving purchases or sales of digital assets. The guidance applies to tax years ending on or after November 10, 2025, with October 6, 2026 also marking a relevant effective date under the updated procedure.
Existing trusts have nine months from November 10, 2025 to implement the new requirements before they can no longer rely on the previous 2025 safe harbor. According to the IRS, trusts that comply with Revenue Procedure 2025-31 can continue relying on the earlier safe harbor during the transition period. The nine-month amendment window ran until approximately August 10, 2026, giving trusts room to rewrite their governing documents without forfeiting eligibility. Many trusts were drafted before anyone expected the IRS to bless staking, and their governing documents may have barred it outright or failed to address it. The guidance does not create a general tax exemption for staking income and specifically states that no conclusions should be drawn about federal income tax issues not expressly addressed by the procedure. The clearest beneficiaries are issuers of exchange-traded products holding a single proof-of-stake asset, who now have a defined compliance pathway that could make staking a more standard feature of these vehicles rather than a legal gray zone.
