IRS Clears Staking for Qualifying Crypto Trusts Under New Tax Safe Harbor

The U.S. Internal Revenue Service has updated its tax rules to allow qualifying crypto investment and grantor trusts to stake digital assets without jeopardizing their federal tax classification.

Revenue Procedure 2026-20, issued October 6, clarifies and replaces an earlier 2025 safe harbor after the Treasury Department and IRS received requests for more guidance on issues including eligible proof-of-stake networks, custodians, staking providers, liquidity requirements, slashing protection and the treatment of staking rewards.

IRS Expands Path for Trusts to Stake Crypto

Under the updated safe harbor, a trust that already qualifies as an investment trust and grantor trust can stake its digital assets without losing those classifications, provided it meets the requirements set out by the IRS.

The framework applies to trusts holding a single type of digital asset that operates on a permissionless network using proof-of-stake consensus. The trust's interests must also trade on a national securities exchange, with staking disclosures included in an effective SEC registration statement and liquidity policies maintained in accordance with exchange requirements.

The IRS also specifies that the trust retains ownership of its digital assets while they are staked. The assets must be held by one or more custodians controlling the associated private keys, while staking is carried out through staking providers working with those custodians.

New Rules Address Custody, Liquidity and Slashing

The updated procedure provides greater flexibility around how trusts manage assets that cannot be staked continuously.

Trusts can maintain liquidity reserves to meet redemption requirements and can temporarily keep assets unstaked for certain operational needs, including asset sales to fund expenses, distributions or redemptions. The rules also allow temporary unstaking in response to regulatory changes or potential vulnerabilities involving a blockchain's protocol, staking smart contracts or validator software.

The IRS also addresses slashing, the loss of staked assets that can occur when a validator fails to meet protocol requirements. Under the safe harbor, trusts must be indemnified against slashing losses arising from activities or events reasonably within the staking provider's control or ability to protect against.

Staking Rewards Must Flow to Trust Holders

The procedure sets specific conditions for staking rewards.

Any new assets received through staking must consist of additional units of the same digital asset held by the trust. After trust expenses, an equivalent number of units must be distributed to trust holders in proportion to their interests, either directly, through cash proceeds from selling the rewards, or through a combination of both.

Those distributions must generally be made within 60 days after the end of the calendar quarter in which the trust gains control of the staking rewards.

The framework therefore allows qualifying trusts to generate staking rewards while maintaining their existing federal tax classification, but it does not establish a blanket exemption from tax on staking income.

The IRS explicitly said the procedure does not determine the federal income tax treatment of issues outside its scope, including whether staking income could constitute income effectively connected with a U.S. trade or business or unrelated business taxable income.

Existing Crypto Trusts Get Six Months to Comply

Revenue Procedure 2026-20 also gives existing qualifying trusts six months from October 6 to implement the updated requirements.

During that period, trusts that already comply with the previous 2025 safe harbor can continue relying on it. After the six-month transition period, trusts will no longer be able to rely on Revenue Procedure 2025-31 and will need to meet the updated framework to use the safe harbor.

The new procedure applies to tax years ending on or after October 6, 2026.

The updated guidance comes as staking becomes increasingly relevant to crypto investment products, particularly exchange-traded products holding proof-of-stake assets. By clarifying how qualifying trusts can stake without jeopardizing their tax classification, the IRS has provided a more defined framework for incorporating staking into regulated crypto investment structures.