New guidance for trusts staking digital assets

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The IRS has issued Rev. Proc. 2025-31, which provides a safe harbor for certain trusts to qualify as an investment trust under Reg. Section 301.7701-4(c) (an investment trust) when they are authorized to stake their digital assets.

Certain digital assets require transactions to be carried out on a permissionless network that uses a “proof-of-stake” consensus mechanism for validation. In a proof-of-stake consensus mechanism, a validator node actively participates in the consensus mechanism and the validator node operators commit or “stake” digital assets to be eligible for selection by the relevant protocol to validate a new block of data to the network’s blockchain.

In practice, owners of such digital assets undertake “staking” when a third party takes custody of the owner’s digital assets and facilitates staking on behalf of the owner, in which the owner receives “staking rewards” in the form of more of the same digital asset.

An interest in certain trusts holding digital assets may be listed and traded on a national securities exchange subject to oversight by the SEC.

Under the regulations, an arrangement is treated as a trust if the purpose of the arrangement is to vest in trustees the responsibility to protect or conserve property for beneficiaries, and other requirements are met. A person who is treated as the owner of an undivided fractional interest in a trust under the Code is considered to own the trust assets attributable to that undivided fractional interest.

An investment trust is not classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders. Generally, a power to vary the investment of the certificate holders exists when there is a managerial power under the trust instrument that enables a trust to take advantage of variations in the market to improve the investments of the certificate holders. (See North American Bond Trust, 122 F.2d 545 (2d Cir. 1941).)

The Rev. Proc. states that Treasury and the IRS received requests for guidance on (i) whether staking prevents a legal entity from qualifying as an investment trust and as a grantor trust; and (ii) if not, whether an existing trust may be amended to authorize staking of digital assets without impairing its qualification as an investment trust and as a grantor trust.

The Rev. Proc. provides a safe harbor that a trust’s authorization to stake its digital assets does not disqualify the trust as an investment trust and as a grantor trust if 14 requirements are met. These include:

• Interests in the trust are traded on a national securities exchange.
• The trust owns only cash and units of a single type of digital asset.
• The trust’s digital assets are held by a custodian at digital asset addresses controlled by such custodian.
• The trust’s staking of digital assets protects and conserves trust property by mitigating the risk that another party or group could control a majority of the total staked digital assets of that type and engage in transactions that could reduce the value of the trust’s digital assets.
• The trust activities related to digital assets are limited to a specified list of activities in the Rev. Proc.
• The trust directs staking of its digital assets through one or more custodians who facilitate staking on the trust’s behalf through one or more staking providers.
• The trust, the custodian and the sponsor have no legal right or arrangement to participate in or direct or control the activities of the staking provider in any way, and do not do so, except to direct the staking and unstaking of the trust’s digital assets under the Rev. Proc.
• All of the digital assets of the trust must be made available to the staking provider to be staked at all times, subject to certain exceptions provided in the Rev. Proc.
• A trust may stake less than all of its digital assets to create and maintain a liquidity reserve as described in the Rev. Proc.
• The trust may hold additional digital assets that are not staked only as described in the Rev. Proc. and in connection with certain events described in the Rev. Proc.
• The trust may enter into a contingent liquidity arrangement only under certain circumstances described in the Rev. Proc.
• The trust’s digital assets are indemnified from “slashing,” which could result in a reduction of the trust’s digital assets, due to the activities of staking providers.
• The only new assets received by the trust as, a result of staking its digital assets are additional units, in the same form, of the single type of digital assets held by the trust.

The Rev. Proc. applies to an arrangement formed as a trust under state law that would otherwise qualify as an investment trust and as a grantor trust if the trust agreement did not authorize staking; and if it was in existence prior to the trust agreement authorizing staking, it qualified as an investment trust and as a grantor trust immediately before the trust agreement authorized staking.

The Rev. Proc. is effective for tax years ending on or after Nov. 10, 2025. No inferences should be drawn from the Rev. Proc. related to the federal income tax treatment that is not expressly addressed in the guidance. 

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