Treatment of income from qualified digital asset validation activity by tax-exempt entities

(a) Treatment under unrelated business taxable income (1) In general Section 512(b) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (20) Certain digital asset validation income (A) In general There shall be excluded income from qualified digital asset validation activity, and all deductions directly connected with such income. (B) Qualified digital asset validation activity (i) In general For purposes of this subsection, the term qualified digital asset validation activity means any activity— (I) which involves digital asset validation supporting activities, and (II) in which the taxpayer does not substantially participate. (ii) Substantial participation For purposes of clause (i)(II), a taxpayer shall be treated as not substantially participating in an activity described in clause (i)(I) if the taxpayer— (I) owns the digital assets and delegates validation rights to another person on terms consistent with those that would be agreed to between unrelated persons dealing at arm’s length under comparable circumstances, (II) does not operate the validator nodes and does not control validator selection beyond delegation and committing or uncommitting tokens to the validation network, and (III) does not undertake other activity that seeks to control the activity described in clause (i)(I).. (2) Debt-financed property Section 512(b)(4) of such Code is amended by striking or (5) and inserting (5), or (20). (b) Regulations The Secretary of the Treasury (or the Secretary's delegate) shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of the amendments made by this section, including regulations or guidance to prevent the abuse of such amendments. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2026.