In Revenue Procedure 2025-31, the IRS established a safe harbor allowing certain US exchange-traded products (ETPs) that hold digital assets and are investment and grantor trusts for US federal income tax purposes to stake their digital assets without jeopardizing this tax status. Existing trusts may amend their trust agreements to authorize staking at any time during the nine-month period beginning November 10, 2025.

Background

The Treasury Department and the IRS received requests for guidance on whether (1) staking prevents a trust from qualifying as an investment trust under Treas. Reg. Section 301.7701-4(c) and as a grantor trust for US federal income tax purposes, and (2) if not, whether an existing trust agreement may be amended to authorize staking of some or all of the trust's digital assets without jeopardizing its tax status.

Covered digital assets and staking activity

The revenue procedure addresses digital assets for which transactions are carried out on a permissionless network that uses a proof-of-stake consensus mechanism to validate those transactions (PoS Networks). Examples of digital assets carried out on PoS Network include ether and solana. The revenue procedure does not cover digital assets that utilize a proof-of-work mechanism, such as bitcoin.

Staking rewards are incentives for participating in the validation of transactions on blockchains that use a PoS Network. Validators commit, or "stake," digital assets to become eligible to validate new blocks and maintain the integrity and security of the blockchain. In return, validators receive "rewards," which are typically in the form of additional units of the relevant digital asset. Digital asset owners can participate in staking in various forms, including custodial staking where a third-party custodian takes custody of the owner's digital assets and facilitates the staking of those digital assets on behalf of the owner.

Covered digital-asset ETPs

Some ETPs in the market passively invest in a single digital asset. These digital-asset ETPs are not registered under the Investment Company Act of 1940, but their interests are publicly traded on a securities exchange. The Securities and Exchange Commission (SEC) regulates the offer and sale of interests in digital-asset ETPs to the public. Over the past year, the SEC has issued guidance on digital-asset activities, including staking, and ETPs. This SEC guidance opened the door for digital-asset ETP issuers to more easily offer and list their trust interests on securities exchanges, as well as engage in staking activities.

These single-asset ETPs typically take the position that they are classified for federal income tax purposes as investment trusts under Treas. Reg. Section 301.7701-4(c) and as grantor trusts. Therefore, investors in these ETPs are treated for tax purposes as if they directly own their pro rata interests in the ETPs' digital assets. Thus, investors are treated as directly receiving their pro rata share of the ETPs' income and proceeds from the digital assets' sale and directly incurring their pro rata share of the ETPs' expenses.

A trust is classified as an investment trust rather than a business entity under Treas. Reg. Section 301.7701-4(c) only if it is not engaged in a profit-making business and there is no power under the trust agreement to vary the trust's investments. The trust agreements of many digital-asset ETPs prohibit the ETP (and its delegates) from employing the ETPs' digital assets in staking activities, out of concern that staking activity would result in the loss of their tax qualification as investment or grantor trusts. As a result, investors in these ETPs cannot increase returns on their digital-asset investment via staking rewards.

Under the revenue procedure, an ETP meeting the safe harbor's requirements can engage in staking activities without jeopardizing its tax status, provided the ETP otherwise qualifies for investment and grantor trust treatment. Existing ETPs can amend their trust agreements to authorize staking at any time during the nine-month period beginning on November 10, 2025.

Safe harbor

To qualify for the safe harbor, an ETP must meet the following detailed set of requirements in the revenue procedure:

1. The trust's interests must be listed and traded on a national securities exchange; comply with applicable SEC regulations and rules; have SEC-reviewed-and-approved staking disclosures; and have written liquidity-risk policies and procedures that comply with the requirements of the applicable national securities exchange. In addition, the trust's assets and activities must be described in the May 29, 2025 Statement on Certain Protocol Staking Activities of the SEC's Division of Corporate Finance.
2. The trust can own only cash and one type of digital asset (as defined in IRC Section 6045(g)(3)(D)), which must use a PoS Network.
3. The trust's digital assets must be held by a custodian, acting on behalf of the trust, that has sole control over the sale, transfer and exercise of ownership rights over the digital assets, including while staked. For tax purposes, the trust retains ownership of the digital assets at all times, including while staked.
4. The trust's staking of its digital assets must protect and conserve trust property by reducing the risk that another party could take majority control of the total staked assets and engage in transaction that could reduce the asset value.
5. The trust's digital-asset-related activities must be strictly limited to specific functions, including: accepting deposits of digital asset or cash in exchange for newly issued trust interests; holding digital assets and cash; paying trust expenses and selling digital assets for cash to pay trust expenses or to make cash redemptions of trust interests; purchasing additional digital assets with cash contributed to the trust; distributing digital assets or cash to trust investors in redemption of their interests; selling digital assets for cash in liquidation of the trust; and directing staking of its digital assets in accordance with the applicable requirements of the national securities exchange on which the trust interests are traded and this safe harbor. The trust agreement must prohibit the trust from seeking to improve investments of trust interest holders by taking advantage of market variations based on the value of the digital assets, the amount of staking rewards or other factors.
6. The trust's staking must be directed through custodians and unrelated staking providers, with diligent selection and arm's-length contractual terms.
7. The trust, its custodian and its sponsor cannot (or have the legal right to) participate in or direct or control the staking provider's activities, except to direct the staking or unstaking of the trust's digital assets as provided under this safe harbor.
8. The digital assets to be staked must be made available to the staking provider at all times, except as otherwise provided under this safe harbor.
9. The trust can stake less than all its digital assets to create and maintain a liquidity reserve if necessary to comply with the trust's liquidity-risk policies and procedures, which in turn are based on the requirements of the relevant national securities exchange relating to timely meeting trust holder's redemption requests.
10. The trust can hold digital assets as unavailable for staking on a short-term temporary basis and in connection with specified ordinary-course trust events (e.g., sale of assets for cash to pay trust expenses, contribution of digital assets in connection with the creation of interests in the trust or distributions of digital assets to trust investors redeeming their trust interests).
11. The trust can temporarily hold digital assets as unavailable for staking for unexpected, specified events (e.g., sale of assets for cash in connection with trust's liquidation, termination of custodian agreement, change in applicable law or regulation).
12. If needed to comply with the trust's liquidity-risk policies and procedures, the trust can enter contingent liquidity arrangements to reduce adverse liquidity events that would otherwise prevent the trust from distributing digital assets or cash to investors in redemption of their interests.
13. The trust's digital assets must be indemnified against "slashing" losses from staking-provider activities.
14. The trust can only receive additional units of its single digital asset as staking rewards. The staking rewards, after deducting trust expenses, must be distributed in-kind or as cash proceeds from selling the staking rewards, in proportion to the trust interest holders' relative interests in the trust, on at least a quarterly basis. The trust must treat all staking rewards consistently.

Limitations

The Treasury and IRS indicate that taxpayers should draw no inferences from the revenue procedure about any other issues related to staking or other digital-asset transactions (e.g., airdrops or forking) not expressly covered in the revenue procedure. Other tax questions that are related to staking activities and not addressed in this guidance include(1) how to source income from staking rewards, and (2) whether to treat income from staking activities as income effectively connected with a trade or business within the United States (ECI); unrelated business taxable income (UBTI) under IRC Section 512 (for tax-exempt entities); or fixed, determinable, annual or periodic income (FDAP) (for foreign taxpayers).

Implications

New digital-asset ETPs will likely be launched within the safe harbor, while existing digital-asset ETPs will likely amend their trust agreements and adopt staking policies and procedures in line with the safe harbor. ETPs will need to work with their sponsors, custodians, legal counsel, tax advisers and other stakeholders to implement and comply with the detailed set of safe-harbor requirements. Some of these requirements raise implementation questions (e.g., quarterly distributions of rewards ), and discussion among stakeholders, including with the Treasury and IRS, may be needed.

Staking activities in an ETP give rise to additional tax considerations, including tax issues that Treasury and the IRS have not yet addressed. Investors, sponsors and other market participants will need to consider these issues when implementing the safe harbor.

Staking activities and the receipt of rewards inside an ETP will also complicate tax reporting for these digital-asset ETPs, as they generally send their investors an annual written tax information statement. Investors and their brokers will need to determine the timing, source, character and amount of their pro rata share of any income on the ETP's receipt of staking rewards and associated expenses, as well as their gain or loss on the ETP's sales of staking rewards to pay trust expenses or to make cash distributions of those rewards to investors. ETPs should discuss with their tax advisers and administrators the timing, collection and presentation of the additional data that will be needed for investors under applicable tax regulations.

Broker-dealers and other intermediaries will have to consider withholding tax and reporting implications for any non-US investors with ETPs in their accounts. This includes navigating the current uncertainty about whether staking rewards give rise to ECI or would qualify as US-source FDAP. In the absence of contrary guidance, brokers may feel compelled in many circumstances to treat rewards paid to non-US investors as US-source income subject to withholding at 30% (or possibly a lower treaty rate). Finally, tax-exempt investors in ETPs engaging in staking activities will need to consider whether the receipt of staking rewards could constitute UBTI, requiring the payment of taxes and filing of an IRS Form 990-T.

This revenue procedure's affirmative answer to the question of whether staking is allowed in ETPs is good news for the digital-asset industry and its investors. However, the guidance is limited to ETPs and the implications of this revenue procedure for other digital asset trusts that are not publicly traded or are otherwise outside this safe harbor are not clear. Furthermore, more Treasury and IRS guidance on staking would be welcome, as would guidance on the tax treatment of digital assets more generally. The Treasury/IRS Priority Guidance Plan 2025-26 lists digital-asset guidance among its top priorities for this year, so we hope to see more guidance in the coming months.