Digital Nomad
How Staking Digital Assets via Trusts Can Benefit Grantor Trusts: Safe Harbor Rules Explained
A new safe harbor under IRS Rev. Proc. 2025-31 lets investment trusts and grantor trusts stake digital assets without losing favorable tax status—learn how to take advantage.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## What Is the New Safe Harbor?
The IRS issued **Revenue Procedure 2025-31**, effective **for tax years ending on or after November 10, 2025**, which provides a safe harbor for trusts (that would otherwise qualify as investment trusts under IRC § 301.7701-4(c) and as grantor trusts) to stake their digital assets without jeopardizing that classification.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
Under this safe harbor, trusts meeting specific requirements can authorize staking in their trust agreements (or amend existing agreements) **during a 9-month period starting November 10, 2025** and thereafter stake digital assets while retaining their trust status.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
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## Key Requirements for Trusts to Qualify
To take advantage of this safe harbor, a trust must meet all the following:
- Interests in the trust must **trade on a national securities exchange**, with disclosure of staking activities reviewed and approved by the SEC.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- The trust must hold **only one type** of digital asset and cash, and the digital asset’s network must be a **permissionless network using a proof-of-stake consensus mechanism**.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- Digital assets must be held by a **custodian** that controls private keys and executes stakings; the trust must retain ownership throughout.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- Trust must have written liquidity risk policies and a liquidity reserve if required by the listing exchange; staking of assets should not impede redemptions.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- Staking rewards must be handled consistently—distributed in kind or sold for cash proportionally, at least quarterly.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
An existing trust can **amend its trust agreement during the 9-month window** (i.e., until August 10, 2026) without losing qualification.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
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## Practical Examples
| Scenario | Does It Qualify Under the Safe Harbor? |
|---|---|
| A trust listed on NYSE, holding ETH (proof-of-stake token), and cash, that stakes ETH rewards via a custodian, with staking provisions approved by SEC, and reasonable liquidity policies in trust agreement. | **Yes**, if all formal requirements and disclosure in trust documents are met.
| A closed-end fund treated as a trust, holding several tokens, staking across multiple staking providers, no liquidity reserve written, and no daily trading. | **No**, fails the single digital asset rule; liquidity reserve missing; unclear governance.
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## Why It Matters
Without this safe harbor, staking activity could jeopardize a trust’s classification, resulting in unfavorable tax treatment—for example, losing grantor trust status (taxed as pass-through entities) or investment trust status (which affects entity taxation rules). This change gives clarity to trusts and their stakeholders dealing with digital assets.
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## Action Steps for Trustees and Sponsors
1. **Review your trust agreement** to ensure it authorizes staking and complies with required disclosure and governance.
2. **Ensure SEC disclosure**: If trust interests are publicly traded, staking activity must be disclosed and approved by the SEC under its statements.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
3. **Work with a custodian** who will control private keys and manage staking operations in compliance. Ensure they align with trust’s documentation.
4. **Adopt or document liquidity risk policies**: define liquidity reserve, redemption policies, protections for stake-related risks.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
5. **Plan amendment timing**: If trust agreement does not yet authorize staking, amend *before August 10, 2026* (nine months after November 10, 2025).([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
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## Potential Risks to Watch Out For
- Failing any one requirement in the safe harbor can disqualify trust status under this rule.
- Operational risks: staking protocols may impose locking periods; delays in redemptions could conflict with liquidity policies.
- Legal and regulatory risk: where SEC disclosure or exchange listing standards are not met.
- Tax risk for non-compliance if trust is audited and found to fall outside the safe harbor.
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## Bottom Line
For trusts holding digital assets in proof-of-stake networks, **Rev. Proc. 2025-31 provides a clear path** to stake those assets without losing favorable tax classifications—provided you follow the formal safe harbor requirements. Trustees should act now to ensure documentation, disclosure, and governance are in order before the safe harbor amendment window closes.