On October 6, 2026, the IRS issued Revenue Procedure 2026-20, providing updated guidance for certain investment and grantor trusts that stake digital assets. The guidance explains when a qualifying trust may participate in staking without jeopardizing its federal income tax status.
Staking generally involves committing digital assets to help validate transactions on a proof-of-stake blockchain network. In return, participants may receive additional digital assets as staking rewards. When an investment grantor trust takes native tokens, locks them up, receives newly minted block rewards, and auto-compounds or sells those rewards, it is actively managing and varying the trust’s investment portfolio to chase yield. If the IRS determines that the trustee has the power to vary the investment through staking strategies, the entity could lose its status as a grantor trust and be reclassified as an association subject to double-taxation as a corporation or complex partnership reporting.
In the case of personal estate planning non-grantor trusts, staking might accidentally convert an irrevocable trust into a grantor trust if the grantor uses their personal validator node or personal keys, arguably maintaining a right to control or retrieve the property. Or, if the grantor determines how staking rewards are allocated, distributed, or re-staked among beneficiaries rather than leaving that choice strictly to an independent trustee, the trust would be reclassified as a grantor trust for federal tax purposes.
The Treasury Department and IRS first addressed such concerns in Revenue Procedure 2025-31, which created a safe harbor allowing qualifying trusts to stake digital assets without losing their tax status, which expired in August of this year. After receiving requests for additional guidance, the IRS issued Revenue Procedure 2026-20 to clarify and replace the earlier guidance. While the updated procedure largely mirrors the prior guidance, it does modify the prior safe-harbor and provides a six-month period for trusts to amend their governing instrument to authorize staking in accordance with the requirements of the safe harbor.
Under the updated safe harbor, a qualifying trust may stake its digital assets while maintaining its investment trust or grantor trust status if it meets certain requirements. Among other things, the trust’s interests must be traded on a national securities exchange, its staking disclosures must be filed with the SEC in an effective registration statement, and the trust generally may hold only cash and one type of digital asset operating on a permissionless proof-of-stake network.
Staking generally must be conducted through custodians and unrelated staking providers under arm’s-length arrangements. The trust generally must make its digital assets available for staking, but it may keep some assets unstaked for liquidity needs and certain other permitted circumstances.
The Revenue Procedure also addresses staking rewards. The trust may receive additional units of the same digital asset it already holds, but units equal to those rewards, after accounting for trust expenses, generally must be distributed to investors or sold and the proceeds distributed within 60 days after the end of the quarter in which the trust gains control of the rewards.
Revenue Procedure 2026-20 is effective for tax years ending on or after October 6, 2026. Existing trusts enjoy a six-month transition period to meet the updated safe harbor requirements.
Overall, the new guidance provides greater certainty for qualifying trusts that want to participate in digital asset staking while preserving their status as a qualified investment trust or as a grantor trust if the safe harbor requirements are satisfied. Contact Liskow’s Transactional and Tax attorneys Leon Rittenberg III, Caroline Lafourcade, Abby Strohmeyer, and visit our Tax Practice page for additional information.