IRS Updates Safe Harbor for Proof-of-Stake Trusts

The U.S. Internal Revenue Service has updated its safe harbor allowing qualifying investment and grantor trusts to stake proof-of-stake digital assets without jeopardizing their federal income tax classification, according to CryptoNews.

Issued on Oct. 6, Revenue Procedure 2026-20 replaces Revenue Procedure 2025-31, which originally established the framework in November 2025. Existing trusts have six months from the issuance date to adopt the revised requirements before they can no longer rely on the previous safe harbor.

Eligibility and Custody Requirements

Eligible arrangements must be formed as trusts under applicable state law and qualify as investment and grantor trusts prior to meeting the safe harbor conditions. Interests in the trust must trade on a national securities exchange, and staking disclosures must be filed with the Securities and Exchange Commission through an effective registration statement.

Assets are restricted to cash and units of a single type of digital asset operating on a permissionless proof-of-stake network. One or more custodians must hold the digital assets at addresses they control, with only those custodians able to access the associated private keys. The IRS noted that the trust retains ownership of the assets for federal income tax purposes while they are staked.

Rewards and Liquidity Rules

Staking rewards must consist of additional units of the same digital asset held by the trust. After covering trust expenses, equivalent numbers of units must be distributed to holders in kind, sold and distributed as cash, or handled through a combination of both methods. Distributions must occur no later than 60 days after the end of the calendar quarter in which the trust gains control over the rewards.

The guidance creates specific exceptions for liquidity and operational needs, permitting trusts to keep portions of their holdings unstaked to comply with redemption requirements or cover expenses.

Key facts

• Revenue Procedure 2026-20 was issued by the IRS on Oct. 6, replacing Revenue Procedure 2025-31.
• Existing trusts have a six-month adoption window to comply with the revised requirements.
• Staking rewards must be distributed to holders within 60 days after the end of the calendar quarter.
• The guidance does not provide a general tax exemption for staking income.