Briefing
The Internal Revenue Service (IRS) issued Revenue Procedure 2025-31, establishing a clear safe harbor that allows certain investment trusts to engage in digital asset staking without forfeiting their tax classification as a passive grantor trust. This guidance resolves a critical ambiguity that threatened the viability of institutional investment products, such as spot Exchange-Traded Products (ETPs), by ensuring staking does not constitute a disqualifying “power to vary” investments or convert the trust into a business entity for tax purposes. The procedure is immediately applicable to tax years ending on or after November 10, 2025, and mandates that trusts amend their agreements by August 10, 2026, to explicitly authorize staking activities.
Context
Prior to this Revenue Procedure, a significant legal uncertainty existed regarding the tax treatment of investment trusts that participate in proof-of-stake consensus mechanisms. Under long-standing tax law, an investment trust risks reclassification as a taxable business entity if the trustee possesses the “power to vary” the investment of the certificate holders. The compliance challenge centered on whether the active participation and generation of yield through staking would be interpreted as a disqualifying business activity, thereby disrupting the fundamental tax structure of regulated investment vehicles designed to hold a single asset. This ambiguity created a systemic risk that prevented broad institutional integration of staking yields into regulated products.
Analysis
This guidance is a critical update to the compliance framework for fund sponsors and custodians, providing the necessary legal certainty to integrate staking into product structuring. The safe harbor is conditional, requiring strict adherence to limitations on the trust’s activities, such as prohibiting arbitrage and mandating that the trust and sponsor be unrelated to the staking provider. Regulated entities must now update their trust agreements and operational control systems to satisfy the criteria, ensuring staking activities are limited to asset preservation and incidental cost coverage. This clarity de-risks the product lifecycle for institutional digital asset ETPs, enabling them to offer competitive yields and attract capital that was previously hesitant due to the unresolved tax liability.
Parameters
- IRS Document → Revenue Procedure 2025-31 (The specific IRS guidance providing the tax safe harbor)
- Tax Status Protected → Grantor Trust / Investment Trust (The classification that avoids treatment as a taxable business entity)
- Agreement Amendment Deadline → August 10, 2026 (The final date for trusts to amend their agreements to authorize staking under the safe harbor)
- Applicability Date → November 10, 2025 (The effective date for tax years ending on or after this date)
Outlook
The Revenue Procedure sets a powerful precedent for harmonizing US tax law with digital asset operations, reflecting coordinated effort between the IRS and the SEC to facilitate institutional participation. The next phase will involve fund sponsors rapidly amending trust documents and integrating staking controls into their custody and reporting modules to meet the August 2026 deadline. This action is expected to unlock a new revenue stream for regulated digital asset ETPs, enhancing their competitiveness and potentially accelerating the approval and launch of additional staked products, thereby attracting substantial institutional capital into the US market infrastructure.
