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Overview
Revenue Procedure 2025-31 establishes a safe harbor that permits exchange-traded products (ETPs) that are organized as trusts and that hold digital assets on proof‑of‑stake networks to stake those assets without jeopardizing their classification as investment trusts under Treasury Regulation § 301.7701‑4(c) or grantor trusts under sections 671-679 of the Internal Revenue Code ("the Code"). The safe harbor is narrowly tailored to cover only publicly traded, single‑asset digital trusts that meet specified SEC, exchange, custody, liquidity, and operational requirements. The revenue procedure also provides a nine‑month window beginning November 10, 2025 during which eligible existing trusts may amend their governing instruments to adopt the safe harbor.
Investment Trusts and Exchange-Traded Cryptocurrency Products
A grantor trust offers several advantages to its holders. The trust is not subject to entity-level U.S. federal income taxes, as owners of a grantor trust are treated as direct co-owners of the underlying assets held by the trust. Information reporting by a grantor trust to investors on Form 1099 is also much simpler than information reporting by a partnership on Schedule K-1 to its partners. For these reasons, ETPs that hold a single commodity like gold have often utilized an investment trust, which qualifies as a grantor trust.
There are generally two requirements to qualify as an investment trust: (1) the trust must have a "single class of ownership interests, representing an undivided interest in the assets of the trust";1 and (2) the trust agreement must convey no power to vary the investment of the holders of an interest in the trust.2 The purpose of this second requirement is to prevent the trust from engaging in ongoing investment or business activities, the income and loss from which are more appropriately taxed under the rules applicable to partnerships or corporations.
Since investment trusts holding a single crypto asset were first approved by the SEC and began trading on a national exchange in 2024, they have since expanded to hold various newer crypto assets including Ether (ETH). Unlike proof-of-work tokens like Bitcoin, certain crypto assets like Ether utilize a proof-of stake consensus mechanism, where blockchain transactions are validated by participants who lock up ("stake") their crypto assets, and such validators are eligible to earn additional crypto assets as a reward for staking. Under existing IRS guidance prior to Rev. Proc. 2025-31, it was unclear whether managerial power to participate in staking under the trust agreement would be a "power to vary" that would disqualify treatment as an investment trust. The potential downside of such a trust being disqualified is significant: While the trust might be treated as a partnership for U.S. federal income tax purposes, a "publicly traded partnership" is generally treated as a corporation unless it satisfies a "qualifying income" test. A disqualified trust might well be a publicly traded partnership and because it is also unclear whether income from staking rewards would be treated as qualifying income, the disqualified trust might fail the qualifying income test, too—in which case the trust could become subject to U.S. federal corporate tax on its staking income and any gain from disposing of crypto assets.
In light of the uncertainty, many ETPs seeking treatment as investment trusts holding cryptocurrency assets have exercised caution to preserve their classification as investment trusts and grantor trusts. In practice, these trusts have generally refused to stake cryptocurrency assets and have disclaimed ownership of property received in respect of a crypto asset that could jeopardize a trust's classification.3 Other crypto ETPs have begun staking their cryptocurrency assets, but only with disclosure of the potential risk of losing grantor trust status as a result.4
Earlier this year, the U.S. President's Working Group on Digital Asset Markets issued a report making numerous recommendations for regulatory and tax guidance on digital assets, among them that "Treasury and the IRS should publish guidance addressing whether a trust that otherwise qualifies as an investment trust treated as a grantor trust fails to qualify as such if the trust stakes digital assets owned by the trust."5 During a recent Senate Finance Committee hearing in October 2025, it was noted that the grantor trust rules were not designed with digital assets in mind and do not accommodate staking or similar blockchain-based activities, and that the IRS should issue guidance allowing "staking activity within grantor trust structures, clarifying that such activity does not destroy pass-through treatment."6 The issuance of Revenue Procedure 2025-31 fulfills these recommendations and provides some much-needed clarity on staking activities and the investment trust classification.
Key Safe Harbor Conditions
Revenue Procedure 2025-31 provides that an investment trust that, pursuant to its trust agreement, can stake its digital assets is not disqualified as an investment trust and grantor trust from having such power or exercising it if it meets the 14 requirements listed in the revenue procedure, summarized in condensed form below.
Regulatory posture and disclosure: Trust interests must trade on a national securities exchange and must comply with certain SEC regulations. For example, the trust's assets and activities must align with the SEC Division of Corporation Finance's May 29, 2025 Statement on Certain Protocol Staking Activities.
Asset composition: The trust may hold only cash and units of a single digital asset on a network that uses a proof-of-stake validation mechanism.
Custody and ownership: A qualified custodian, on behalf of the trust, must hold the digital assets. However, for federal income tax purposes, the trust retains ownership of the digital assets at all times, including while they are staked.
Purpose and activities: The staking of the trust's digital assets must protect and conserve the value of the trust property by mitigating concentration risks in network validation. The trust's activities relating to the digital assets must also be limited to those listed in the revenue procedure, including accepting deposits of digital assets or cash for newly issued interests in the trust, holding and purchasing only digital assets and cash, distributing such digital assets in connection with a redemption of trust interests, and selling digital assets in connection with the trust's liquidation. The trust agreement must also expressly prohibit exercising a "power to vary investments" to improve returns.
Staking arrangements: The trust must direct the staking of digital assets through one or more custodians who facilitate staking with one or more staking providers. Such staking providers must be unrelated to the trust and the sponsor. The allocation of staking rewards between the staking provider and the custodian on behalf of the trust must be at arm's length and independent of the expenses of the staking provider or custodian.
All of the digital assets of the trust must be made available to the staking provider to be staked at all times, except (i) as needed to maintain a liquidity reserve to comply with the trust's liquidity risk policies and procedures required by the national securities exchange, (ii) for digital assets held on a short-term temporary basis to pay trust expenses, to facilitate redemptions of trust interests, to purchase digital assets or the ownership of digital assets received as staking rewards, (iii) to enter into contingent liquidity arrangements (i.e., a lending facility or an arrangement to sell or purchase digital assets for cash or digital assets on a current or deferred basis) to mitigate an adverse liquidity event, and (iv) in connection with the trust's liquidation or the cessation of an arrangement with a custodian or staking provider, to take protective measures against potential systemic vulnerabilities, or in connection with a change in law.
Risk mitigation: The trust's digital assets must be indemnified against "slashing" (i.e., staked units being forfeited as a penalty for failing to act in accordance with the network's consensus mechanism) due to the staking provider's activities.
Rewards treatment: Only additional units of the same single digital asset may be received as staking rewards. After netting trust expenses, rewards must be distributed to holders at least quarterly, either distributed in kind or, if sold for cash, distributed in cash, applied consistently.
Amendment Window and Effective Date
A trust that existed prior to the revenue procedure may amend its governing instrument to authorize staking at any time during the nine‑month period beginning November 10, 2025. If the trust satisfies all safe harbor requirements, the amendment will not impair investment or grantor trust status. This amendment window will allow otherwise-qualifying ETPs that have, because of the previous regulatory and tax uncertainty, not previously staked their digital assets to begin to do so, subject to compliance with applicable SEC requirements as well.
Important Limitations
The IRS cautions against drawing inferences outside the safe harbor's scope. The revenue procedure does not address the many other important outstanding questions about the tax treatment of digital assets, including whether staking income is effectively connected income or unrelated business taxable income, or the tax treatment of other digital asset events such as forks and airdrops. Further guidance in that regard would be a welcome development.
Footnotes
1 A limited exception exists for trusts with multiple classes of ownership if the trust is formed to facilitate direct investment in the assets of the trust and the existence of multiple classes of ownership is incidental to that purpose. Treas. Reg. §301.7701-4(c)(1).
2 Commissioner v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941).
3 Grayscale Ethereum Mini Trust ETF, Prospectus 26 (Sep. 12, 2025) available at https://online.flippingbook.com/view/373972647/32/; iShares Ethereum Trust ETF, Prospectus i (July 31, 2025) available at https://www.ishares.com/us/literature/prospectus/p-ishares-ethereum-trust-etf-12-31.pdf; VanEck Ethereum ETF, Prospectus i (July 22, 2024) available at https://www.vaneck.com/us/en/investments/ethereum-etf-ethv/ethv-prospectus.pdf.
4 Bitwise Solana Staking ETF, Prospectus 89 (Oct. 27, 2025), available at https://www.sec.gov/Archives/edgar/data/2045872/000121390025102689/ea026236201-424b3_bitwise.htm#a_005; Grayscale Cardano Trust ETF, Amendment to Form S-1 10 (Oct. 20, 2025), available at https://www.sec.gov/Archives/edgar/data/2083106/000119312525243710/ada_s-1_amendment_1.htm.
5 Presidential Working Group on Digital Asset Markets, Strengthening American Leadership in Digital Financial Technology 127 (July 17, 2025) available at https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.
6 See Hearing on the Taxation of Digital Assets: Hearing Before the S. Comm. on Finance, 119th Cong. (October 1, 2025) (testimony of Lawrence Zlatkin, Vice President of Tax Coinbase Global, Inc.).
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