The IRS has released new guidance on crypto staking and grantor trusts that marks a pivotal step for trusts navigating the complexities of digital asset investments.
The IRS guidance in Revenue Procedure 2025-31 provides clarity for grantor trusts that hold digital assets. Historically, there were concerns that engaging in staking activities, particularly with proof-of-stake cryptocurrencies, could jeopardize a trust’s classification as an investment trust under Treasury regulations. This new guidance establishes a safe harbor, ensuring that certain trusts can participate in staking without losing their status as grantor trusts for federal income tax purposes.
Key Safe Harbor Conditions
Under the safe harbor framework, qualifying trusts may stake permissionless, proof-of-stake digital assets, such as Ethereum, provided they meet 14 specific conditions. The key criteria to qualify for safe harbor include:
- Trusts must be publicly traded on a national securities exchange in accordance with updated SEC rules and regulations.
- The trust’s digital assets are held by a custodian, acting on behalf of the trust.
- Trusts must direct their staking through custodians who aid staking with one or more unrelated staking providers under the safe harbor rules.
- The trust holds only cash and one type of digital asset while operating on a permissionless proof-of-stake network.
- All of the digital assets of the trust must be made available to the staking provider to be staked at all times, with exceptions for:
- Maintaining a liquidity reserve.
- Short-term expenses and redemptions.
- Contingent liquidity arrangements.
- Trust liquidation or protective measures.
- Digital assets must be indemnified against "slashing" penalties from validator errors.
- Trusts must distribute staking rewards to interest holders at least quarterly. Distributions must be either in-kind or sold for cash, with proceeds distributed to holders.
- Trusts cannot compound or reinvest staking rewards automatically under these requirements.
Existing trusts have a nine-month window from November 10, 2025, to amend their governing documents to comply with these requirements. The IRS emphasizes that these measures are designed to balance investor flexibility with regulatory integrity.
Conclusion
This development marks a significant step in aligning tax rules with evolving digital asset practices. By clarifying that staking does not inherently alter a trust’s tax classification, the IRS reduces uncertainty for fiduciaries and investors seeking exposure to blockchain-based assets. Revenue Procedure 2025‑31 applies to tax years ending on or after November 10, 2025, signaling a forward-looking approach to digital asset taxation and trust administration.
Withum’s team of experts remains focused on staying ahead of tax developments in the rapidly changing digital asset space.
Author: Michael Sousa, CPA | [email protected]
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