Treatment of trusts and publicly traded partnerships holding digital assets

(a) Trusts (1) In general Section 7701 of the Internal Revenue Code of 1986 is amended— (A) by redesignating subsection (p) as subsection (q), and (B) by inserting after subsection (o) the following new subsection: (p) Tax treatment of certain digital asset investment trusts (1) In general For purposes of this title, in the case of a covered digital asset investment trust formed to hold digital assets— (A) any power held by the trustee to stake or unstake digital assets, whether directly or through delegation to another party, and to perform any related acts to exercise such power to stake, including the retention of staking rewards, shall not be treated as a power under such trust agreement to vary the investment of the certificate holders of such trust and shall not otherwise disqualify an entity from characterization as an investment trust that is not classified as a business entity under this section, (B) discretionary powers held by a trustee to use other measures, including a borrowing facility, to manage the trust’s potential need for assets available to satisfy redemptions shall not be treated as a power under the applicable trust agreement to vary the investment of the certificate holders of such trust, and (C) discretionary powers held by a trustee to act in response to changes to technology supporting the digital assets held by the trust, including with regard to staking, shall not be treated as a power under the applicable trust agreement to vary the investment of the certificate holders of such trust. (2) Nonapplication to validating trade or business This subsection shall not apply in the case of any entity or arrangement engaged in the active conduct of a trade or business of validating digital asset transactions. (3) Covered digital asset investment trust For purposes of this subsection, the term covered digital asset investment trust means a trust which satisfies each of the following requirements: (A) The trust is traded on a national securities exchange which is registered with the Securities and Exchange Commission and complies with any applicable rules and regulations established by such Commission. (B) The trust only holds units of a single digital asset and any transactions with respect to such units are carried out on a network that uses a proof-of-stake consensus mechanism. (C) The trust’s digital assets are held by a qualified custodian on behalf of the trust at digital asset addresses controlled by such custodian. (D) The trust directs staking of its digital assets through 1 or more custodians who facilitate the staking of the digital assets on behalf of the trust with 1 or more staking providers, subject to terms consistent with those that would be agreed to between unrelated persons dealing at arm’s length under comparable circumstances. (4) Regulations and guidance The Secretary shall prescribe such regulations or other guidance as may be necessary and appropriate to carry out the purposes of this subsection. (2) Effective date (A) In general Subject to subparagraph (B), the amendments made by this subsection shall apply to taxable years beginning after December 31, 2026. (B) Election At the election of the taxpayer, the amendments made by this subsection may apply to any taxable years beginning before January 1, 2027. No inference may be drawn from the amendments made by this subsection with respect to the absence of explicit rules during such taxable years. (b) Publicly traded partnership (1) In general Section 7704(d)(1) of the Internal Revenue Code of 1986 is amended— (A) in subparagraph (F), by striking and at the end, (B) in subparagraph (G), by striking the period at the end and inserting, and, (C) by inserting after subparagraph (G) the following new paragraph: (H) (i) staking rewards, to the extent includible in gross income, (ii) payments with respect to applicable asset loans (as defined in section 512(a)(5)) to the extent attributable to traded digital assets, or (iii) gains from the sale or exchange of— (I) digital assets (other than those described in section 1221(a)(1) in the hands of the taxpayer), or (II) futures contracts, forward contracts, or options with respect to digital assets., and (D) in the flush text following subparagraph (H), by adding at the end the following: For purposes of subparagraph (H), qualifying income shall not include income or gain derived from operating a digital asset exchange, lending platform, broker, dealer, or other digital asset financial services business for a spread, commission, fee, or similar compensation.. (2) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2026.