IRS Releases Revenue Procedure 2025-31 to Provide a Safe Harbor for Staking in Certain Trust Vehicles

On November 10, 2025, the Internal Revenue Service (IRS) released Revenue Procedure 2025-31 (the Rev. Proc.) which provides a safe harbor which would allow widely held fixed investment trusts to stake digital assets without upsetting their status as an “investment trust” under Treas. Reg. § 301.7701-4(c) or as a grantor trust under Sections 671-679 of the Tax Code (the Code). In addition to providing the IRS’s interpretation of the treatment of staking in digital asset investment trusts, Section 4 of the Rev. Proc. notes that it is intended to align with updated guidance from the Securities Exchange Commission which also allows for staking in certain exchange-traded products (ETPs).

Investment trust and grantor trust status is beneficial to fund managers and investors alike, as it provides for passthrough tax treatment for investors and allows for a simplified tax reporting framework. However, this beneficial status is lost if a trustee or sponsor has the power under the trust agreement to “vary the investment” of the trust’s interest holders. Treas. Reg. § 301.7701-4(c). Under longstanding caselaw and IRS rulings, a trustee or sponsor of a trust is treated as having the power to vary the investments of the interest holders if it has managerial power under the trust instrument to take advantage of variations in the market to improve the investments of the certificate holders. See Comm’r v. North American Bond Trust, 122 F.2d 545 (2d Cir. 1941), cert. denied, 314 U.S. 701 (1942); cf. Comm’r v. Chase National Bank, 122 F.2d 540 (2d Cir. 1941).

Staking is the validation process on proof-of-stake protocols whereby transactions on a blockchain are validated and, as a result, stakers can generate additional tokens (either in the form of newly created tokens or as transaction fees from the transactions validated by a validator. These tokens are colloquially referred to as “staking rewards”). In many cases, staking requires two components:

1. the delegation of “stake weight,” whereby tokenholders “lock” their tokens up for a set amount of time, and
2. the operation of validating nodes

To operate a validating node, a validator must use token stake weight and computing power to run the requisite computer programs. Operation of a validating node often requires a significant amount of stake weight; the Ethereum protocol, for example, requires 32 ETH to operate a node (worth over US $115,000 as of November 10, 2025). A delegator, by contrast, need only choose a validator (or, more accurately, a validating node) and does not need to meet a required minimum number of tokens to generate rewards. A single person can be both a delegator and a validator, but more often it is the case that delegators and validators are separate parties.

The Rev. Proc. safe harbor sets forth a conjunctive 14-part test which, if satisfied, allows a trust to invest in and stake a single type of digital asset without upsetting its status as an investment trust under Treas. Reg. § 301.7701-4 or as a grantor trust under Sections 671-679 of the Code. The safe harbor test requires, among other things, that:

• the trusts’ interests be traded on a national securities exchange in accordance with updated SEC rules and regulations;
• the trust only holds cash and a single type of digital asset;
• the trust directs its staking activities through a custodian to a “staking provider” on arm’s length terms (i.e., that the trust only delegates its stake weight);
• the trust, pursuant to the trust agreement, is prohibited from seeking to take advantage of variations in the market in improve the investments of the trust interest holders, including variations based on the value of the digital assets or the amount of staking rewards;
• the trust has no legal right or arrangement to participate in or direct or control the activities of the staking provider; and
• the trust stakes all its tokens (subject to a number of exceptions, including to maintain a liquidity reserve for trust holders who want to redeem their interests for the underlying tokens)

The safe harbor applies to all tax years ending on or after November 10, 2025. Trusts that were formed prior to the issuance of the Rev. Proc. may make an amendment to their trust agreements at any time during the nine-month period starting on November 10, 2025, to authorize staking without upsetting their status as an investment trust under Treas. Reg. § 301.7701-4(c) or a grantor trust, as long as the safe harbor requirements of the Rev. Proc. are met.