IRS Allows Tax-Free Staking for Crypto ETFs in New Safe Harbor

The U.S. Treasury and IRS have announced Revenue Procedure 2025-31, creating a safe harbor that fundamentally transforms how crypto exchange-traded funds can participate in staking networks. This guidance directly addresses a critical regulatory challenge that previously prevented asset managers from engaging in staking due to tax law concerns. Under the previous framework, tax law prohibited trusts from controlling investments or operating businesses for profit, creating a situation where active staking management could lead the IRS to classify these products as corporations.

Treasury Secretary Scott Bessent stated on November 10 that this move is specifically designed to enhance investor benefits, promote innovation, and maintain America’s position as a global leader in digital asset and blockchain technology. The revised policy creates a clear pathway where staking rewards earned within an Exchange-Traded Product framework no longer automatically create immediate tax liabilities for individual investors, resolving what had been a significant barrier to institutional participation.

Consensys lawyer Bill Hughes provided crucial insight into the update’s significance, stating that the guidance “transforms staking from a compliance risk into a tax-recognized, institutionally viable activity.” This transformation represents a watershed moment for digital asset markets, as the previous uncertainty around corporate tax classification made staking activities potentially unprofitable for investors. If classified as corporations, trusts’ staking rewards would have been subject to corporate taxes, effectively eliminating the economic viability of such operations.

To qualify for this new tax protection, ETFs must adhere to strict operational requirements. The investment products must operate on national securities exchanges with all activities and disclosures approved by the SEC. Trusts can hold only cash and one type of proof-of-stake digital asset, with management limited to essential tasks such as accepting assets, paying expenses, and distributing rewards. Critically, earning profits from market fluctuations is prohibited, and a third-party custodian must hold private keys while working with an independent staking provider.

This new tax clarity arrives as asset managers are already expanding their digital asset offerings. The regulatory path for such products was partially cleared in August when the SEC’s Division of Corporation Finance issued a bulletin stating that certain liquid staking activities do not fall under securities laws. Many experts viewed this determination as the final major obstacle for SEC approval of staking in spot Ethereum ETFs, setting the stage for innovative new products including the first Solana staking ETF that launched in the United States in July.

The development has been characterized by industry observers like BMNR Bullz as a major victory for ETH and crypto ETFs, potentially opening the door to trillions of dollars in institutional capital. This regulatory clarity could accelerate mainstream digital asset adoption by providing the certainty that large financial institutions require before committing significant capital. The combination of SEC guidance on securities law classification and IRS clarity on tax treatment creates a comprehensive regulatory framework that supports continued innovation in blockchain-based financial products.

The convergence of these regulatory developments suggests a maturing market environment where traditional finance and digital assets can increasingly interoperate. With clear rules governing staking activities within ETF structures, institutional investors can now participate in proof-of-stake networks with confidence, potentially driving increased liquidity and stability across digital asset markets while maintaining the investor protections that have characterized traditional securities regulation.