What Is the Safe Harbor Under Rev. Proc. 2025-31?
To help trusts conform to U.S. federal tax code, the IRS has created a safe harbor that allows certain trusts to stake digital assets like proof-of-stake cryptocurrencies without losing their status as investment trusts under § 301.7701-4(c) or as grantor trusts.(irs.gov)
Key Requirements to Qualify:
- Trust Structure:
- Must be legally a trust under state law.
- Trust interests must be traded on a U.S. national securities exchange, complying with its rules. The trust’s disclosures about staking should be approved by the SEC.(irs.gov)
- Single Digital Asset Type & Proof-of-Stake Network:
- Trust can only hold cash and one type of digital asset (as defined in the IRS rules).
- That digital asset must be on a permissionless network using a proof-of-stake consensus mechanism.(irs.gov)
- Custodial Control:
- A custodian must hold the digital assets and control the private keys, including while staking. The trust must retain ownership despite staking.(irs.gov)
- Allowed Trust Activities:
- Trust must limit activities to receiving deposits, holding assets, paying expenses, selling for redemptions, distributing staking rewards periodically (at least quarterly), maintaining liquidity reserve, etc.(irs.gov)
Amendments Window:
Trusts that aren’t yet staking or that haven’t updated their trust agreements can do so within nine months beginning November 10, 2025 to adopt required staking authorization and comply retroactively.(irs.gov)
Examples to Illustrate
| Scenario | Meets Safe Harbor? |
|---|---|
| Trust A holds ETH (proof-of-stake asset), trades shares on NYSE, custodian controls keys, staking rewards distributed quarterly | ✅ Likely qualifies under safe harbor. |
| Trust B holds multiple types of crypto assets (ETH + SOL), with no requirement to restrict to one asset type | ❌ Doesn’t meet single-asset requirement. |
| Trust C is not traded on a securities exchange; private trust | ❌ Fails requirement for trading and SEC oversight. |
Implications for Trusts & Beneficiaries
- Trusts that previously avoided staking out of fear of losing favorable tax treatment can now consider staking under defined parameters.
- Beneficiaries may receive staking rewards either in kind or in cash, periodically; this affects trust distributions and fiduciary duties.
- Trust accounting and compliance burdens: record-keeping, custody, disclosures, and meeting liquidity requirements.
Actionable Steps for Trusts Considering Staking
- Review trust instrument (agreement) now to ensure it authorizes staking and meets the safe harbor rules. Amend during the nine-month window if needed.(irs.gov)
- Verify your asset is proof-of-stake and in a permissionless network. Many newer blockchain networks qualify; older ones may not.
- Ensure custodian arrangement is clear: who holds keys, lacks control until redemption, etc.
- Structure reward distributions per policy: in kind or cash, ensuring fairness across beneficiaries.
- Keep disclosures, SEC filings, liquidity reserve and other required documentation well maintained.
Why the Safe Harbor Is Important
- Clarity & control: Removes much of the ambiguity around proof-of-stake and tax treatment.
- Opportunities for yield: Trusts can generate staking rewards, potentially a growing source of income.
- Avoid unexpected tax loss: Without safe harbor, trusts risk losing investment trust status, leading to adverse tax treatment.
Summary
If your trust is considering staking or already doing so, this safe harbor is an opportunity to align operations without sacrificing favorable tax status. With clear requirements and a defined amendment window, planning now can make the difference between compliance and costly missteps.