IRS Guidance on Crypto Staking for Trusts: What Investors Need to Know

The Internal Revenue Service (IRS) has issued new guidance, Revenue Procedure 2026-20, that allows certain cryptocurrency trusts to engage in staking without jeopardizing their federal tax classifications. This development is significant for investment trusts and grantor trusts that hold digital assets. The procedure, effective for tax years ending on or after October 6, 2026, provides a safe harbor for these trusts, but it’s crucial to understand its limitations and requirements.

The core of this guidance is that it permits qualifying trusts to stake proof-of-stake assets while maintaining their established tax status. This means trusts that are treated as investment trusts or grantor trusts can continue to do so under specific conditions. However, it’s important to note that this procedure does not make staking rewards tax-free. Instead, it focuses on preserving the trust’s classification, with the tax implications of rewards still needing to be handled according to existing tax laws.

Understanding the Safe Harbor

Revenue Procedure 2026-20 offers a safe harbor that protects a trust’s classification as an investment trust under Treasury Regulation §301.7701-4(c) and as a grantor trust under Internal Revenue Code §§671 and 677. This protection applies when the trust engages in staking activities. The procedure specifically addresses the trust’s classification and does not alter the taxability of the income generated from staking.

For a trust to be eligible for this safe harbor, several conditions must be met. The trust must be organized under state law and already meet the requirements for both federal tax classifications. Furthermore, its interests must be traded on a U.S. national securities exchange. The trust also needs to disclose its staking activities through an effective SEC registration statement and adhere to applicable exchange rules.

Portfolio and Custodial Requirements

The types of assets a trust can hold are restricted under this guidance. It may only hold cash and units of a single type of digital asset. This digital asset must operate on a permissionless proof-of-stake network. The safekeeping of these assets is also critical, with one or more custodians responsible for holding the digital assets and controlling the relevant wallet addresses and private keys.

These custodians must work with third-party staking providers. The arrangements between the trust, its sponsor, and the providers must be at arm’s length. Generally, neither the trust nor its sponsor can have a relationship with a staking provider. The trust must ensure its digital assets are available for staking while maintaining sufficient liquidity and operational reserves. The primary purpose of staking must be to protect and conserve the trust property, such as reducing the risk of another party gaining control of the network’s staked assets. Importantly, the trust retains ownership of the staked assets for federal tax purposes.

Tax Treatment of Staking Rewards

While the safe harbor allows trusts to stake without changing their tax classification, it does not exempt staking rewards from taxation. The procedure clarifies that rewards must be in the form of additional units of the same digital asset held by the trust. These rewards must be allocated proportionally to investors after accounting for trust expenses.

A trust has flexibility in how it distributes these rewards. It can distribute them in kind, sell them and pass the cash proceeds to investors, or use a combination of both methods. The distribution must occur no later than 60 days after the end of the calendar quarter in which the trust gains control of the rewards. This ensures that investors receive their share of the staking income in a timely manner.

Transition Period for Existing Trusts

Existing trusts that currently qualify for staking relief have a six-month transition period, starting from October 6, 2026, to comply with the revised requirements of Revenue Procedure 2026-20. During this time, trusts that were in compliance with the previous safe harbor, Revenue Procedure 2025-31, can continue to rely on it. This transition period allows trusts to amend their trust agreements, adjust their operational procedures, or both, to align with the new guidance.

The previous safe harbor will cease to be effective after this transition period. Therefore, existing trusts must use this defined window to revise their documents and operations to ensure continued compliance with the IRS’s updated rules for crypto trust staking. This new procedure supersedes the earlier safe harbor, making it essential for trusts to adapt to the updated requirements.

Frequently Asked Questions