Multisig Wallets and Crypto Tax: Why Key Structure Doesn’t Shield LLCs or Trusts from Airdrop and Staking Income #
The idea surfaces regularly in crypto tax planning discussions: set up an LLC or trust, use a multisig wallet where you don’t hold all the keys, and argue that you lack dominion and control over airdrops or staking rewards, thus avoiding immediate taxation. The logic sounds plausible until you understand what the IRS actually means by dominion and control. Multisig key structure is governance. Legal control is ownership. The IRS cares about the second, not the first.
The answer is no. A multisig wallet does not provide tax shelter for airdrops or staking rewards received by your LLC or trust. In Revenue Ruling 2023-14, the IRS has ruled that staking rewards must be included in gross income for the taxable year in which the taxpayer acquires dominion and control of the awarded cryptocurrency. The determination of dominion and control focuses on legal authority to dispose of assets, not the technical mechanism required to execute that disposal.
Dominion and control, in tax law, means the legal right to transfer, sell, exchange, or otherwise dispose of property. The key term is “dominion and control,” which means you can sell, transfer, or use the tokens without restriction. This is a question of beneficial ownership and legal rights, not private key cryptography. The IRS looks at who has the legal authority to access and use the assets, not how many signatures the wallet requires to execute transactions.
If your LLC owns crypto in a 2-of-3 multisig wallet where you control one key, a business partner controls another, and a third-party custodian holds the backup, the LLC still has dominion and control over those assets. The multisig structure provides operational security and prevents unilateral action, but it doesn’t eliminate the LLC’s legal authority over the assets. The LLC has the right to receive airdrops directed to its addresses and the legal entitlement to staking rewards generated by its staked positions. Those rights trigger tax obligations when the income is received.
The same principle applies to trusts. This revenue procedure describes a safe harbor for trusts that otherwise qualify as investment trusts and as grantor trusts to stake their digital assets without jeopardizing their tax status as investment trusts and grantor trusts for Federal income tax purposes. Revenue Procedure 2025-31 specifically addresses trusts engaging in staking, clarifying that qualifying trusts can stake assets without losing their trust classification. The guidance doesn’t create a tax exemption for staking rewards. It confirms that trusts can stake while maintaining their trust status, which means the income flows through to beneficiaries or is taxed at the trust level depending on trust structure.
Grantor trusts report income to the grantor. Investment trusts typically provide pass-through treatment to beneficiaries. Either way, the staking rewards are taxable income to someone when dominion and control is established. The multisig structure used to hold the trust’s assets doesn’t change this. If the trust has the legal right to those rewards, they’re taxable when received.
If you’re part of a 2-of-3 multisig wallet for a DAO treasury, and you’re just one signer with no claim to the funds—you have no personal tax liability for those assets. If you and a friend share a multisig wallet for joint investing, and you both own 50%—you are responsible for taxes on your share of any gains/losses. The distinction is clear: ownership determines tax liability, not signing authority. If you’re merely a signer with no beneficial interest, you have no tax liability because you don’t own the assets. If you own part of the assets, you have tax liability proportional to your ownership regardless of how many keys are required to move them.
This means an LLC where you’re the sole member using a 3-of-5 multisig doesn’t avoid tax. The LLC owns the assets, you own the LLC, and the income flows through to you on Schedule C or via K-1 if it’s a multi-member LLC. The five keys provide security and governance, but the IRS looks through the technical structure to the underlying economic substance. Your LLC received valuable property (the airdrop or staking reward), it has the legal authority to dispose of that property even though multiple signatures are required, and therefore income is recognized.
The timing question matters for locked or vesting rewards. Staking rewards are taxed as income when you have “dominion and control”, in simple terms, when you’re free to use them without permission from any third party. If rewards are subject to a lockup period where they cannot be transferred or sold, dominion and control doesn’t exist until they unlock. The fact that they appear in your multisig wallet but remain locked doesn’t trigger immediate taxation. Once they unlock and become freely transferable, that’s when income is recognized.
But note the careful wording: free to use without permission from any third party. The permission required from other multisig signers is internal to your entity’s governance structure, not an external third-party restriction. If your LLC’s operating agreement requires multiple member signatures to approve transactions, that’s an internal control, not a lack of dominion. The LLC as an entity still has dominion and control over the assets once they’re unlocked from protocol-level restrictions.
Airdrops follow the same principles. According to the IRS’ guidance, even unwanted tokens must be reported as ordinary income at their fair market value when they enter your wallet or you otherwise gain control over them. The airdrop hitting your multisig address creates taxable income at fair market value when received, provided you have dominion and control. The multisig structure doesn’t defer that taxation because the entity receiving the airdrop has the legal right to dispose of those tokens even if multiple signatures are required to execute the disposal.
When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency. IRS FAQ A24 makes this explicit. The moment the airdrop records on-chain and you have the ability to dispose of it, income is recognized. Multisig doesn’t eliminate the ability to dispose. It just means disposition requires multiple parties to agree, which is an internal governance matter.
The IRS isn’t confused about multisig wallets. They understand that some organizations use shared custody structures requiring multiple approvals. The tax code already handles similar situations in traditional finance: corporate bank accounts requiring dual signatures, trust accounts requiring co-trustee approval, partnership accounts requiring partner authorization. None of these structures eliminate tax obligations on income received by the entity. The same logic applies to crypto multisig structures.
Think about the operational reality. Your LLC receives an airdrop of 10,000 tokens worth $50,000. Those tokens sit in a 2-of-3 multisig wallet. You argue no tax is due because you personally don’t have unilateral control. The IRS looks at whether the LLC has dominion and control, which it does because the LLC has the legal authority to dispose of those tokens through its designated multisig process. The LLC reports $50,000 of ordinary income. If it’s a single-member LLC, that flows through to you on Schedule C. If it’s multi-member, it shows on the K-1s distributed to members.
The safer structure for coordinating control isn’t designed to avoid taxes but to protect assets and ensure proper governance. Multisig wallets serve legitimate purposes: preventing theft, requiring consensus for major transactions, maintaining continuity if one keyholder becomes unavailable, meeting fiduciary duties in trust administration. These are security and governance benefits, not tax advantages. Any tax professional suggesting otherwise is either confused about IRS guidance or proposing something that won’t survive scrutiny.
Entity structure affects who pays the tax, not whether tax is due. A single-member LLC is disregarded for tax purposes, so income flows through to the owner. A multi-member LLC taxed as a partnership reports income at the partnership level and distributes K-1s showing each member’s share. A trust might be a grantor trust where income is taxed to the grantor, or a complex trust where income is taxed at trust rates or distributed to beneficiaries. The multisig wallet holding the entity’s crypto doesn’t change any of these fundamental tax treatments.
Professional crypto custody providers using multisig structures for client assets understand this distinction clearly. The custodian holds keys as part of its service but doesn’t have beneficial ownership of client assets. Clients maintain dominion and control because they retain the legal right to direct disposition of their assets even though the custodian’s participation is required to execute transactions. This is why qualified custodians like Anchorage Digital provide clear documentation of beneficial ownership separate from key management responsibilities.
The documentation trail matters more than the key structure. If you’re using multisig for an LLC or trust holding crypto, maintain clear records showing: beneficial ownership of assets, legal authority to direct disposition, dates when airdrops or staking rewards became available, fair market value at the time of receipt, and internal approval processes for managing assets. These records establish the tax position based on economic substance, not technical implementation details.
Foreign account reporting adds another layer. If you have signing authority over foreign crypto wallets or accounts (including offshore entities using multisig wallets), you may need to file: FBAR (FinCEN Form 114) – if your combined foreign accounts exceed $10,000 at any point. Signing authority alone can trigger reporting obligations even if you don’t have beneficial ownership. This reinforces that the IRS distinguishes between signing authority (which multisig addresses) and beneficial ownership (which determines taxation).
The constructive receipt doctrine would apply even if multisig somehow delayed recognition. Under this doctrine, income is taxable when it’s credited to your account, set apart for you, or otherwise made available so you can draw upon it at any time. An airdrop to your entity’s address satisfies this test. The fact that your internal processes require multiple approvals to spend it doesn’t mean it wasn’t made available. The protocol delivered the tokens to an address controlled by your entity. That’s constructive receipt regardless of how many keys are needed to spend them.
Some argue that lack of individual control means income should defer until assets are actually sold or distributed. This confuses realization with recognition. The airdrop or staking reward is the realization event. You received property. The IRS taxes that receipt as income at fair market value. Later disposition creates a separate capital gain or loss based on the difference between sale proceeds and your tax basis (which equals the amount you reported as income when received). Multisig doesn’t defer the initial income recognition.
The correct tax strategy for entities holding crypto focuses on proper characterization, accurate valuations, and legitimate deductions. If your LLC incurs expenses operating nodes to generate staking rewards, those expenses offset the income. If rewards have no readily ascertainable market value when received, you might argue for a lower valuation, though this becomes harder to defend as crypto markets mature and pricing becomes more transparent. If you’re providing services to earn airdrops, that might affect whether income is ordinary or potentially subject to different treatment.
What doesn’t work is arguing that multisig key structure eliminates dominion and control. It doesn’t. The entity has dominion and control when it has the legal right to dispose of assets. Internal governance requiring multiple approvals to exercise that right doesn’t negate its existence. The IRS has been clear about this in traditional finance contexts and nothing about crypto changes the fundamental principle.
Digital Wealth Partners coordinates tax-efficient wealth management strategies that properly characterize crypto income while implementing robust security through institutional custody. Digital Ascension Group provides family office services that structure multi-generational wealth strategies where entity selection, trust design, and custody arrangements align with tax compliance rather than attempting to circumvent it through technical gimmicks.
Multisig wallets provide governance and security, not tax avoidance. If your LLC or trust has the legal authority to receive airdrops and dispose of staking rewards, it has dominion and control regardless of how many private keys are required to execute transactions. Income is taxable when received at fair market value. The key structure is irrelevant to that determination. Control means legal authority to dispose, not unilateral technical ability. Professional tax and legal advice specific to your entity structure is essential, but no competent advisor will suggest that multisig eliminates tax obligations on crypto income your entity receives.
Contact Digital Ascension Group to learn how our family office services can coordinate your complete financial picture.
