Law of Code #162 - Crypto ETF staking safe harbor explained by tax expert Jason Schwartz
Nov 25, 2025
Tax expert Jason Schwartz, a partner at CahillNXT specializing in digital assets, shares vital insights into the new IRS safe harbor for crypto ETFs. He explains how this allows staking within grantor trusts without reclassification as corporations. The discussion covers key safe harbor criteria and the implications for various stakeholders, including investors and issuers. Jason also raises intriguing questions about distribution rules, liquidity reserves, and potential alternative strategies like liquid staking tokens, addressing the uncertainties that remain.
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Safe Harbor Preserves Grantor-Trust Status
- The safe harbor lets grantor-trust ETPs stake while retaining pass-through tax treatment instead of becoming corporations.
- This removes major tax risk that staking rewards would trigger 21% entity tax and dividend treatment for holders.
Staking Could Make Trusts Look Like Businesses
- Grantor trusts can lose status if they act like a business or if trustees have managerial powers to vary investments.
- If reclassified, public partnerships with active income over 10% can become corporations and face corporate tax.
Use Unrelated Staking Providers
- Use unrelated professional staking providers paid at arm's-length to fit the safe harbor.
- Avoid using vertically integrated sponsors that own staking providers if you want safe-harbor protection.