US IRS Grants Safe Harbor to Qualifying Trusts for Staking
Key Facts
The US Internal Revenue Service issued Revenue Procedure 2026-20, establishing a tax safe harbor that allows qualifying trusts to stake digital assets while retaining their classification as grantor investment trusts for federal income tax purposes. The procedure applies only to arrangements established as trusts under state law that meet specified classification requirements and hold digital assets on open networks using proof-of-stake. It is not a general regulatory authorization for cryptocurrency funds, nor does it automatically extend to all trusts or holders of digital assets. The IRS said the trust retains ownership of the assets for federal income tax purposes throughout the staking period. The rules give qualifying institutions a framework for handling the activity, while tying access to clear operational and disclosure conditions.
The safe harbor requires the trust’s shares to be traded on a national securities exchange and an effective registration statement with the Securities and Exchange Commission to disclose staking activity. The trust must also comply with exchange rules and adopt written liquidity risk management policies consistent with those requirements. These conditions are particularly significant for trusts that may need to meet redemption requests while their assets are locked in staking. The IRS said liquidity disclosures are specifically intended to address cases in which staked assets exceed 15% of the trust’s assets on a given day and are not readily available to meet redemption requests within one business day. The procedure therefore links a trust’s eligibility to its ability to disclose and manage risks under the rules of the exchange on which its shares are listed.
The procedure limits the assets a qualifying trust may hold to cash and units of a single type of digital asset. It allows a trust to maintain a liquidity reserve by staking only part of its assets, and permits un-staked assets to remain temporarily in specified circumstances, including share creation, distributions, receipt of rewards and certain liquidity events. This arrangement does not cover digital assets the trust receives in a transaction treated as borrowing for federal tax purposes. These limits define the assets and circumstances within which the safe harbor can operate, while allowing limited flexibility to manage liquidity needs. They do not change the requirement that the trust’s portfolio be limited to cash and one type of digital asset.
The rules require staking rewards, after deduction of the trust’s expenses, to be distributed to shareholders in proportion to their ownership. Distributions may be made in units of the digital asset, cash received from the rewards, or a combination of the two, no later than 60 days after the end of the calendar quarter in which the trust obtains dominion and control over the rewards. Rewards may include newly issued additional units of the digital asset or transaction fees paid by those seeking to add transactions to the blockchain. The rules also require the assets and their private keys to remain in the custody of one or more custodians, while the trust retains ownership of the assets for federal income tax purposes even while they are being staked. The IRS also requires the trust to be indemnified for slashing losses resulting from events within the staking service provider’s control or reasonable ability to prevent.
The amended procedure builds on the safe harbor established by the Treasury Department and the IRS in Revenue Procedure 2025-31, issued in November 2025. The IRS said it had received requests for further clarification on the proof-of-stake protocols covered, SEC disclosure requirements, use of more than one custodian, protection against slashing and the tax treatment of staking rewards. Revenue Procedure 2026-20 responds to these issues with detailed conditions concerning disclosure, liquidity, custody and distributions. It applies to tax years ending on or after October 6, 2026, and clarifies, amends and supersedes the prior procedure. The effective date therefore defines the tax years subject to the updated guidance.
The IRS gave existing trusts six months after October 6, 2026, to implement the new requirements, while allowing trusts that meet its conditions to continue relying on the prior safe harbor during that period. The transition period gives existing institutions time to align registration documents, liquidity policies and reward distribution procedures with the amended standards. The procedure does not, however, resolve every federal tax consequence associated with staking. The IRS said no tax treatment should be inferred for issues the text does not expressly address, including whether staking income is effectively connected with the conduct of a trade or business in the United States, or subject to unrelated business income tax. Those issues therefore remain outside the scope of the safe harbor for qualifying trusts.