US IRS, Treasury Update Guidance for Crypto ETPs

The United States Internal Revenue Service (IRS), the country’s tax collection office under the Treasury Department, has updated its guidelines for cryptocurrency exchange-traded products (ETPs) to include a safe harbor for trusts to stake digital assets.

Treasury Secretary Scott Bessent wrote in a Monday X article that the agencies issued guidance providing crypto ETPs “a clear path to stake digital assets and share staking rewards with their retail investors.”

According to guidance available on the IRS website, government agencies would allow crypto trusts to participate in staking, provided they are traded on a national securities exchange, hold only cash and “units of a single type of digital asset,” held by a custodian, and mitigate specific risks for investors.

“The impact on staking adoption is expected to be significant,” Bill Hughes, senior counsel at Consensys, said in a Monday X article.

“This safe harbor provides long-awaited regulatory and tax clarity for institutional vehicles such as ETFs and crypto trusts, allowing them to participate in staking while remaining compliant, Hughes wrote. “This effectively removes a major legal barrier that had discouraged fund sponsors, custodians and asset managers from integrating staking returns into regulated investment products.”

The guidelines follow the U.S. Securities and Exchange Commission’s (SEC) September approval of generic listing standards, which are expected to give the green light to cryptocurrency exchange-traded funds. The IRS and Treasury noted the SEC rule change as part of the updated guidance.

Related: US lawmakers grapple with crypto tax policy amid government shutdown

Any future directions on the eve of the end of the government shutdown?

After more than 40 days, reports on Sunday indicated that several Democratic lawmakers in the U.S. Senate had broken ranks and were prepared to support Republicans in a vote to end the government shutdown by passing a continuing resolution through January.

The Senate had not voted on the measure as of publication time. Since the shutdown began on October 1, staff at many departments and agencies, including the SEC and IRS, have been furloughed.