The IRS has updated the safe harbor for investment and grantor trusts, allowing them to stake digital assets with proof of stake without losing federal tax classification. The updated rules were issued on October 6, 2026, as part of Revenue Procedure 2026-20, replacing Revenue Procedure 2025-31 introduced in November 2025. Existing trusts have six months from October 6 to align their activities with the new requirements and not lose the right to rely on the previous safe harbor.
Trusts must meet conditions related to exchange listing, SEC disclosures, custodial services, liquidity management, and reward distribution. Rewards must consist of the same digital assets as in the trust, and equivalent units or cash must be distributed proportionally to shares no later than 60 days after the end of the quarter. Trusts meeting the requirements continue to qualify as investment trusts under Section 301.7701-4(c) and as grantor trusts for federal tax purposes.
The IRS clarified that the guidance does not create a general tax exemption for staking income and does not define tax treatment for issues outside the stated scope, including effectively connected income, UBTI, forks, and airdrops. Staking is seen as a way to protect trust assets from the risk of control by one party. Trusts are allowed to hold some assets outside of staking to meet redemption requirements and when selling assets to cover expenses. The new rules allow for multiple custodians and contingent liquidity arrangements, including loans. The procedure applies to tax years ending on October 6, 2026, or later.
Several American funds are already moving towards similar structures. Fidelity revealed plans in September to stake Ethereum for FETH with assets around $898 million. Morgan Stanley offers a 95% / 5% structure for Ethereum and Solana funds. BlackRock in ETHB directs 70-95% of ETH to Figment validators, with 82% of rewards going to shareholders. Grayscale proposed quarterly cash distributions for its Ethereum and Solana ETFs.
This material is prepared solely for informational purposes and does not constitute financial advice or a recommendation.
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