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IRS Extends Safe Harbor Deadline for Staking Crypto Trusts Into 2027
By Bear Creek Staff, . Bear Creek Capital Network.
The IRS quietly extended a compliance window for crypto staking trusts on October 6, 2026, giving fund sponsors until early 2027 to bring their structures into line with a safe harbor that protects investors from a double layer of taxation, according to 24/7 Wall St.
The new guidance, Revenue Procedure 2026-20, supersedes Rev. Proc. 2025-31, which the IRS issued in November 2025. That earlier procedure gave existing trusts a nine-month window starting November 10, 2025 to amend their governing documents. The updated version resets that clock: trusts now have six months from October 6, 2026 to complete amendments. Trusts that already complied with the 2025 rules may continue relying on them during that same stretch.
The stakes for getting this wrong are significant. A crypto fund structured as a grantor trust pays no tax at the entity level; investors are treated as direct owners of the underlying coins and receive a Form 1099 rather than a partnership K-1, according to analysis from Ropes & Gray cited by 24/7 Wall St. But staking activity can be read by the IRS as a prohibited "power to vary" the investment, which would strip the trust of its grantor status. A disqualified trust could then be treated as a publicly traded partnership, owing corporate tax on staking income and on any gains when it sells coins. That tax hits before a dollar reaches the investor, and a second layer applies when distributions are paid out.
The IRS received eight specific requests for clarification after the 2025 procedure, covering which proof-of-stake protocols qualify, SEC disclosure requirements, the use of multiple custodians, slashing protection, unstaking mechanics, how rewards are treated, liquidity management, and the grace period itself. Revenue Procedure 2026-20 addresses all of them.
On the operational side, the guidance requires funds to distribute staking rewards to holders within 60 days following the close of the calendar quarter in which the fund gains control of them. Distributions can be made in coins, in cash from units sold, or in a combination. Funds are permitted to maintain a liquidity reserve by staking less than their full coin holdings, allowing them to meet redemption requests within one business day. Contingent lending or sale agreements are also permitted, though borrowing crypto does not satisfy that condition. A larger reserve reduces the staking yield passed to investors.
The practical effect for retirement account holders is also worth understanding. An IRA does not insulate an investor from this problem. If the fund itself owes corporate tax, that reduces the net asset value inside the account regardless of the account's tax-exempt status. Under grantor treatment, by contrast, staking rewards earned inside an IRA are not taxed until withdrawal.
Ether, the asset most directly affected because Bitcoin operates on proof-of-work and falls outside these rules entirely, was trading near $2,695 at the time of the 24/7 Wall St. report, having risen roughly 56% over the prior ninety days while remaining down about 42% over the prior year. That volatility means the dollar value of staking rewards can shift substantially from one quarter to the next, making the tax treatment of those rewards a live concern rather than a theoretical one.
The six-month window closes in early April 2027. Fund sponsors that have not yet filed amendments to their trust agreements should treat that deadline as firm: once it passes, the 2025 procedure is replaced entirely and trusts that failed to act lose the ability to rely on either version. Which sponsors file before the window closes is the clearest near-term signal of how the industry intends to handle staking going forward.
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