Briefing
The Internal Revenue Service (IRS) has issued Revenue Procedure 2025-31, establishing a crucial tax safe harbor that permits publicly traded, single-asset digital trusts ∞ such as Exchange-Traded Products (ETPs) ∞ to engage in staking activities on proof-of-stake networks without forfeiting their classification as investment trusts and grantor trusts. This action directly resolves a critical legal ambiguity regarding whether staking constitutes an impermissible power to “vary the investment” of the trust, which would have triggered entity-level taxation and disqualified the product structure. The guidance is narrowly tailored, applying only to trusts that meet specified SEC, exchange, custody, liquidity, and operational requirements, and includes a nine-month window beginning November 10, 2025, for existing trusts to amend their governing instruments to comply.
Context
Prior to this Revenue Procedure, the U.S. tax treatment of digital asset trusts engaging in staking was highly uncertain under the existing grantor trust rules. To qualify as a grantor trust, a vehicle must not possess the power to “vary the investment” of its holders, a standard designed for static asset pools like traditional commodity trusts. Staking, which involves committing assets to a network to earn rewards, was widely viewed as a potential “varying” activity, threatening to reclassify ETPs as partnerships or corporations subject to complex entity-level taxation and reporting. This uncertainty created a significant compliance barrier, preventing institutional products from offering the yield potential inherent in proof-of-stake assets.
Analysis
This safe harbor fundamentally alters the operational and product structuring landscape for digital asset ETP issuers. Firms must now update their compliance frameworks to ensure their trust agreements and staking operations adhere to the Revenue Procedure’s 14 specific requirements, which cover custody, liquidity, and operational controls. The primary compliance impact is the integration of staking activity into the ETP’s structure as a permitted, non-varying function, thereby securing the favorable pass-through tax treatment for investors.
This clarity unlocks a new revenue stream for institutional products, requiring asset managers to immediately evaluate the economic viability and compliance costs of integrating staking into their existing or forthcoming ETP offerings. This update is a critical enabler for the maturation of institutional digital asset products.
Parameters
- Revenue Procedure Number ∞ 2025-31 – The formal IRS guidance document establishing the safe harbor.
- Amendment Window Start ∞ November 10, 2025 – The date the nine-month period for existing trusts to amend their documents began.
- Required Conditions ∞ 14 – The number of specific operational, custody, and exchange requirements trusts must satisfy to qualify for the safe harbor.
- Targeted Structure ∞ Single-Asset Digital Trusts – The specific type of institutional vehicle (e.g. a spot ETF) that the guidance is designed to cover.
Outlook
The IRS’s guidance sets a powerful precedent for regulatory agencies to provide targeted clarity that supports institutional product innovation within existing legal frameworks. The next phase involves ETP issuers rapidly amending their governing instruments within the nine-month window to capitalize on the new staking yield. This move is expected to increase the competitiveness of U.S. digital asset ETPs relative to their global counterparts and could set a template for how other jurisdictions address the tax treatment of on-chain yield generation for regulated funds. Furthermore, the IRS’s focus on the “economic reality” of staking as a network function, rather than an investment decision, may inform future tax and regulatory interpretations across the digital asset ecosystem.
