IRS Guidance Permits Investment Trusts to Stake Digital Assets

The IRS timely provided clarity in line with the movement in the digital asset exchange-traded products (ETPs) industry. Revenue Procedure 2025-31 creates a safe harbor for trusts that otherwise qualify as investment trusts under IRC Sec. 301.7701-4(c) and as grantor trusts to stake their digital assets without jeopardizing their current tax status for U.S. federal income tax purposes. Existing trusts have nine months, beginning November 10, 2025, to amend their governing instruments to authorize staking in accordance with the safe harbor requirements.

Safe Harbor

To qualify for the safe harbor, a trust must satisfy 14 requirements outlined in Section 6 of the revenue procedure, including but not limited to:

1. Interests in the trust are traded on a national securities exchange.
2. The trust owns only cash and units of a single type of digital asset, transactions for which are carried out on a permissionless network that uses a proof-of-stake consensus mechanism to validate those transactions.
3. The trust’s digital assets are held by a custodian, acting on behalf of the trust.
4. Pursuant to the trust agreement, the trust is prohibited from seeking to take advantage of variations in the market to improve the investments of trust interest holders, including variations based on the value of the digital assets or the amount of staking rewards.
5. The trust, the custodian in its capacity as such, 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.
6. All digital assets of the trust must be made available to the staking provider to be staked at all times, except under limited exceptions.
7. The trust’s staking rewards, net of trust expenses, are either distributed in-kind to trust interest holders or sold for cash, and the proceeds distributed to trust interest holders in each case on a periodic basis that is no less frequently than quarterly.

Next Steps

Although this safe harbor provides much needed clarity to preserve the grantor trust status of digital asset ETPs, there are still unresolved tax questions. For example, the revenue procedure does not address whether income attributable to staking would be treated as income effectively connected with the conduct of a trade or business within the U.S. or as unrelated business taxable income. Some of these open items may have to be resolved through digital asset tax legislation, which Congress is currently drafting and discussing. Digital Asset ETPs should discuss with their legal counsel and tax advisers to determine if they fit within the safe harbor, or if they need to amend their governing instruments. Furthermore, ETPs need to address how to appropriately report staking income and related distributions as part of their investor reporting packages.

Contact Cynthia Pedersen, Peter Gilroy-Scott or a member of your service team to discuss this topic further.

In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.