Briefing
The Internal Revenue Service has issued Revenue Procedure 2025-31 , establishing a critical safe harbor that permits certain grantor trusts, such as those used for Exchange-Traded Products, to engage in digital asset staking without forfeiting their tax classification as passive investment vehicles. This action directly resolves a significant ambiguity regarding whether staking activities constitute a disqualifying “power to vary” the investment, which would have subjected the trust to corporate-level taxation. The most immediate compliance detail is that affected trusts must amend their governing documents to explicitly authorize staking by the deadline of August 10, 2026.
Context
Prior to this guidance, the tax treatment of digital asset staking within regulated investment vehicles was uncertain, specifically under the Treasury Regulation Section 301.7701-4(c) concerning investment trusts. The prevailing compliance challenge was the risk that staking → viewed as an active, profit-seeking management effort → would cause a trust to be reclassified as a business entity for tax purposes. This potential reclassification would have imposed a detrimental layer of corporate taxation, thereby rendering the ETP structure unviable for yield generation and limiting institutional participation in proof-of-stake networks.
Analysis
This safe harbor fundamentally alters the product structuring and capital requirements for institutional digital asset offerings. It validates the integration of yield-generating activities into regulated investment products, allowing sponsors to enhance returns and attract capital from risk-averse institutional clients. Fund managers now have the necessary legal certainty to update their compliance frameworks and operationalize staking as a core function.
The procedure requires the trust’s activities to remain strictly limited to accepting, holding, preserving, and disbursing the single asset, which is the cornerstone of its passive tax status. This clear guidance on the “power to vary” principle mitigates a systemic tax risk for the entire ETP ecosystem, enabling the deployment of capital into this new asset class with greater confidence.
Parameters
- Revenue Procedure Number → Rev. Proc. 2025-31 – The specific IRS ruling that establishes the tax safe harbor for staking trusts.
- Trust Amendment Deadline → August 10, 2026 – The final date for trusts to amend their agreements to authorize staking without losing their grantor trust tax status.
- Asset Requirement → Single Type of Digital Asset – The limitation on the trust’s holdings to maintain passive investment status.
Outlook
This ruling sets a powerful precedent for harmonizing digital asset activities with traditional financial structures, signaling a pragmatic shift in federal tax policy that aligns with investor protection and market liquidity standards. The next phase will involve fund sponsors rapidly amending trust documents and integrating staking providers into their operational and audit protocols. The action will likely accelerate the launch of new, yield-bearing ETPs, creating a competitive advantage for US-domiciled institutional products and potentially influencing similar tax clarity in other jurisdictions.
Verdict
The IRS staking safe harbor provides essential tax clarity, transforming the economic viability of institutional digital asset investment products and cementing their path to mainstream adoption.
