IRS Clarifies Staking Safe Harbor For Digital Assets Trusts

On October 6, 2026, the IRS released Rev. Proc. 2026-20, which provides an updated safe harbor for state law trusts that otherwise qualify as investment trusts under Treas. Reg. § 301.7701-4(c) and as grantor trusts to participate in staking transactions while preserving their intended tax classification, provided that such trusts satisfy the prescribed operational, governance, custody, staking provider, liquidity and distribution requirements.

A qualifying trust has a six-month period after October 6, 2026, to implement the new requirements, including amending its trust agreement to authorize staking and revising its processes and procedures. Actions taken to conform during this period will not prevent the trust from qualifying as an investment trust or grantor trust. Rev. Proc. 2026-20 clarifies, modifies, and supersedes Rev. Proc. 2025-31.

1. Digital Assets and Staking.

Digital assets generally are treated as property for U.S. federal income tax purposes and general tax principles apply to digital assets transactions.¹  Section 6045(g)(3)(D) of the Internal Revenue Code generally defines the term “digital asset” as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.” “Staking” generally involves committing digital assets to participate in validating transactions on a proof-of-stake blockchain in exchange for rewards. Custodial staking is an arrangement in which a third party takes custody of the owner’s digital assets and facilitates the staking of such digital assets on behalf of the owner. The Tax Court recently confirmed that staking rewards are included in gross income when the taxpayer obtains dominion and control over them, measured at fair market value at that time.² 

2. Qualifying Trusts.

Investment trust. Treas. Reg. § 301.7701-4(c) provides that an investment trust with a single class of ownership interests representing undivided beneficial interests in the assets of the trust generally is classified as a trust for U.S. federal tax purposes if there is no power under the trust agreement to vary the investment of the certificate holder. A power to vary the investment of the certificate holders exists where 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. If there is a power to vary, the arrangement may be treated as a business entity rather than a trust.

Grantor trust. Under the grantor trust rules,³  where the grantor or another person is treated as the owner of any portion of a trust, the grantor or such other person reports the income, deductions, and credits attributable to the relevant portion of the trust.

SEC Rules Apply. The offer and sale of interests in a trust holding digital assets to investors in a public offering is subject to registration with the U.S. Securities and Exchange Commission.

3. Safe Harbor Requirements.

If the following safe harbor requirements are met, the trustee’s authorization, pursuant to its trust agreement, to stake the trust’s digital assets and the resulting staking of the trust’s digital assets do not prevent the trust from qualifying as a trust classified as an investment trust and as a grantor trust.

• National securities exchange. The trust’s interests must be listed and traded on a national securities exchange. The trust’s activities must comply with the rules of such national securities exchange, including the exchange’s rules on having written liquidity risk policies and procedures. The trust also must disclose its staking activities in an effective registration statement filed with the SEC.
   
• Single asset. The trust may hold only cash and units of a single type of digital asset.
   
• Custodian and ownership. The trust must always retain ownership of the digital assets for federal income tax purposes, including while they are staked. The digital assets must be held by one or more custodians, acting on behalf of the trust, at digital asset addresses controlled by the custodians.
   
• Protection and conservation of trust property. The staking activity must serve to protect and conserve 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.
   
• Limitations on trustee activity. The trustee’s activities relating to digital assets are limited to an enumerated list of permissible activities in the revenue procedure.
   
• Independent staking providers. Staking must be conducted through unrelated custodians and staking providers under arm’s-length arrangements. The trust, its sponsor, and its custodians may not direct or control the activities of the staking provider except to direct the staking and unstaking of the trust’s digital assets.
   
• Stake all assets. All of the digital assets of the trust generally must be made available to one or more staking providers to be staked at all times, except as required to comply with the trust’s liquidity risk policies and procedures required by the national securities exchange on which the interests in the trust are listed and traded.
   
• Indemnification. The trust must be indemnified against slashing caused by activities or events reasonably within the staking provider’s control.
   
• Distribution of rewards. The only new assets that may be received by the trust as a result of the staking activity are additional units of the same digital asset already held by the trust. Staking rewards, net of trust expenses, generally must be distributed to trust holders in kind, sold for cash and the proceeds distributed, or a combination of both. The distributions must be made no later than 60 days after the end of the calendar quarter in which the trust gains dominion and control over the staking rewards.
   

4. Takeaways.

Sponsors and trustees of investment trusts that stake digital assets should carefully review governing documents and staking arrangements against each safe-harbor requirement before relying on Rev. Proc. 2026-20. Particular attention should be given to the trustee’s authority, the selection and independence of custodians and staking providers, liquidity provisions, the allocation and distribution of staking rewards, and procedures for maintaining ongoing compliance.

The House Ways and Means Committee recently passed a digital assets tax bill, which, if passed into law, would be the most comprehensive federal tax bill relating to digital assets to date. Among other items, the bill would establish sourcing and character rules for mining, staking, and similar validation activities and provide rules for certain investment trusts engaged in staking. Trusts may wish to consider the provisions of this bill against their current operations and governing documents.

Finally, the IRS cautioned in the revenue procedure that no inferences should be drawn about matters outside of the safe harbor, including whether staking income is effectively connected income or unrelated business taxable income, and the treatment of forks and airdrops.