A strategy popularized by AQR Capital Management to help wealthy investors slash taxes on ordinary income is drawing renewed scrutiny from the Internal Revenue Service. As part of broader warnings to Wall Street, the IRS signaled it may soon publish guidance aimed at barring certain trades used to harvest losses and reduce tax bills on ordinary income. AQR runs the best-known variant — dubbed Delphi Plus — though it remains unclear whether its mechanics already sidestep IRS concerns. The agency specifically flagged currency bets and transactions combining equity swaps and futures as areas under review. Representatives for AQR did not reply to requests for comment. The firm has previously said it adapts strategies to operate within all relevant guidance and regulations.

On Wall Street, shielding ordinary income — which carries some of the highest tax rates — is increasingly viewed as the next frontier in tax-aware investing. Nathan Koppikar, portfolio manager at Orso Partners, called such strategies the “holy grail,” noting that applying similar tactics to wages, salaries, and bonuses could appeal to millions of everyday millionaires. Daniel Hemel, a professor at New York University School of Law, warned that unchecked growth could amount to “carried interest on steroids” and significantly erode U.S. tax collections.

Tax-aware long-short trading strategies have attracted over $150 billion in assets in just three years. The IRS acknowledged that broad stock-focused approaches may align with long-standing tax-reduction techniques, but cautioned that guidance could apply retroactively. Treasury Secretary Scott Bessent echoed the warning on X, stating the department is serious about cracking down on tax-motivated transactions.