The US Internal Revenue Service has updated safe harbour rules for investment and grantor trusts engaging in digital asset staking, clarifying requirements for custodians, reward distributions, slashing protection, and liquidity arrangements while preserving federal tax classification. Existing trusts have six months from 6 October 2026 to comply with the revised framework.
The US Internal Revenue Service (IRS) issued Revenue Procedure 2026-20, clarifying updated safe harbour guidelines for investment and grantor trusts that engage in digital asset staking. Effective for tax years ending on or after 6 October 2026, this new guidance outlines, modifies, and supersedes the initial safe harbour framework created under Rev. Proc. 2025-31.
The updated rules address operational feedback from market participants and crypto Exchange-Traded Products (ETPs), establishing clear boundaries for staking digital assets without compromising a trust’s federal tax classification.
Preserving tax status and avoiding the “power to vary”
To maintain classification as an investment trust under Treasury Regulations (§ 301.7701-4(c)) and as a grantor trust (§ 671 et seq.), a trust must not possess a “power to vary” the investment of its certificate holders to capture market profits.
Under Rev. Proc. 2026-20, qualifying trusts holding a single type of digital asset on a permissionless proof-of-stake network may authorise and execute staking activities while retaining their tax status. To qualify, the trustee is strictly prohibited from attempting to exploit market fluctuations or reward yields, and staking must serve to protect and conserve trust property against network concentration risks.
Key operational changes in Rev. Proc. 2026-20
The updated revenue procedure introduces several key refinements to align tax compliance with industry practice:
- Multi-custodian arrangements: Resolving prior ambiguity regarding single-custodian references, the IRS explicitly permits trusts to utilise one or more custodians to manage digital assets and coordinate with staking providers.
- Staking reward distributions: Staking rewards—net of trust expenses—must be distributed to interest holders in kind or in cash within 60 days after the end of the calendar quarter in which the trust obtains dominion and control over the rewards.
- Slashing protection requirements: The trust must maintain contractual indemnification against slashing losses resulting from events or failures reasonably within the control of the staking provider.
- Liquidity reserves and contingent arrangements: To fulfil exchange liquidity rules (such as keeping at least 85% of assets available to meet redemptions within one business day), trusts may hold liquidity reserves or enter into contingent liquidity arrangements. Permitted contingent arrangements include cash borrowing facilities or spot/deferred purchase and sale agreements, provided they do not constitute digital asset borrowings for federal tax purposes.
Transition window for existing trusts
The IRS has established a six-month implementation period beginning 6 October 2026, during which existing trusts can amend their trust agreements and update internal operations to conform with the revised requirements. Trusts complying with Rev. Proc. 2025-31 may continue relying on that prior safe harbour during the six-month window, after which full compliance with Rev. Proc. 2026-20 is required.
