The IRS has issued new guidance that clarifies, modifies, and supersedes a 2025 safe harbor for investment and grantor trusts that stake digital assets. The new procedure responds to practitioner feedback and resets the transition period for compliance. (Rev Proc 2026-20, 10/6/2026)
IRS responds to practitioner feedback
The new revenue procedure clarifies, modifies, and supersedes prior guidance under Rev Proc 2025-31 to address requests for additional guidance that the Treasury Department and the IRS received from practitioners. The primary concern for these trusts is the risk that staking digital assets could be construed as a power to “vary the investment” of the certificate holders, which would threaten their classification as investment trusts under Reg. § 301.7701-4(c) and could cause them to be reclassified as business entities.
Following the original safe harbor in 2025, taxpayers and practitioners asked for more clarity on several provisions. The questions involved the use of multiple custodians, the required extent of “slashing” protection, how to unstake and sell assets in anticipation of distributions, and whether certain borrowing transactions can qualify as contingent liquidity arrangements. The new procedure provides answers to these and other questions.
Clarifications for staking safe harbor
The updated guidance clarifies several requirements for a trust’s staking activities to fall within the safe harbor. A trust’s digital assets can now be held by one or more custodians at digital asset addresses controlled by those custodians. To protect trust property, the trust must be indemnified against slashing penalties that arise from activities or events reasonably within the staking provider’s control or ability to protect against.
The procedure also provides more detail on liquidity management. A trust can enter into a contingent liquidity arrangement, such as a lending facility or an agreement to sell or purchase digital assets, to mitigate a liquidity event that otherwise would prevent it from meeting redemption requests. However, the guidance states that an arrangement under which a trust obtains digital assets in a transaction it treats as a borrowing for federal income tax purposes does not qualify as a contingent liquidity arrangement under the safe harbor.
The rules for handling staking rewards are also refined. Any new assets a trust receives from staking must be additional units of the single type of digital asset it already holds. After accounting for expenses, those staking rewards must be distributed to trust interest holders, either in kind or as cash, no more than 60 days after the end of the calendar quarter in which the trust gains dominion and control over the rewards.
Updated transition period and reliance rules
Rev Proc 2026-20 sets a new timeframe for trusts to conform to the updated rules. A trust has a six-month period after October 6, 2026, to implement the new requirements, such as amending its trust agreement to authorize staking, revising its processes and procedures, or both. Actions taken to conform during this window will not prevent the trust from qualifying as an investment trust or grantor trust.
The guidance also allows continued reliance on the prior rules for a limited time. A trust that has complied with Rev Proc 2025-31 can continue to rely on that safe harbor for up to six months after October 6, 2026. After that period, no trust can rely on the old safe harbor. The new revenue procedure is effective for tax years ending on or after October 6, 2026.
For more on when an investment trust is considered a trust for tax purposes under the prior 2025 guidance, see Checkpoint’s Federal Tax Coordinator 2d ¶ C-5010.
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