The US Treasury on Monday signaled a crackdown on strategies used by wealthy investors to minimize tax bills. The department warned it could target "potentially abusive" tactics and issued an IRS ruling against the aggressive use of ETFs to avoid taxable gains. The ruling specifically targets the "351 conversion," which allows investors with appreciated assets to rebalance portfolios without incurring taxable gains.

Treasury Secretary Scott Bessent stated on X that these conversions do not work under existing law and vowed to crack down on transactions designed to dodge taxes. Brent Sullivan, a tax analyst, noted the ruling targets cases where investors contribute portfolios out of step with an ETF's prospectus and quickly wash securities via in-kind redemption. Hedge funds offering tax alpha strategies accrued over $90 billion in 2025, while ETFs created using 351 conversions have raised at least $21 billion since 2021.

Shares in Affiliated Managers Group, which owns a stake in AQR, fell up to 2 percent. AQR and rival Quantinno popularized approaches using leverage and algorithmic trading to realize losses systematically. The Treasury added it is considering additional guidance that could apply retroactively to address these transactions.