The IRS has issued Revenue Procedure 2025-31, a landmark development in crypto taxation and digital-asset compliance.
For the first time, certain investment trusts classified as grantor trusts may stake digital assets without losing their favorable tax status. This new safe harbor provides long-awaited clarity for sponsors of crypto exchange-traded products (ETPs) and other blockchain-based trusts.
💡 What Changed
Previously, earning staking income within a grantor trust could have disqualified it from grantor-trust treatment. Now, under Rev. Proc. 2025-31, qualifying trusts may stake assets on proof-of-stake blockchains and still be treated as investment/grantor trusts for federal income-tax purposes.
⚙️ Key Safe-Harbor Requirements
✅ Hold only one type of digital asset and cash.
✅ Stake through a custodian that operates independently from the staking provider.
✅ Indemnify against slashing losses caused by validators.
✅ Maintain a liquidity reserve to meet redemption requests.
✅ Distribute staking rewards quarterly, in-kind or as cash.
✅ Amend trust agreements within nine months beginning Nov. 10, 2025 to comply.
🧾 Tax & Compliance Implications
Rev. Proc. 2025-31 addresses trust classification, not tax reporting of staking income. Key questions remain:
- How will Form 1099/1042-S reporting apply to staking distributions?
- What is the source and character of staking rewards paid in cash?
- How will withholding apply to non-U.S. investors?
Further IRS or Treasury guidance is likely as digital-asset taxation continues to evolve.
📈 Why It Matters
This safe harbor enables crypto-based trusts to participate in blockchain validation while preserving tax transparency, potentially improving both network security and investor efficiency.
Zaher Fallahi, Attorney at Law & CPA
Crypto Tax Attorney | OFAC & International Tax Expert | MIT-Certified in Blockchain Technology
📍 Los Angeles & Orange County, California 🌐 www.zflegal.com