The Treasury Department issued its first formal warning against several tax-reducing investment strategies, particularly targeting 351 conversion transactions involving exchange-traded funds. Officials stated these moves are not conventional tax planning and do not align with congressional intent. The guidance specifically limits maneuvers where taxpayers diversify holdings without triggering capital-gains taxes through newly launched ETFs.
Since 2021, over 100 funds have launched via 351 exchanges, raising more than $20 billion according to analyst Brent Sullivan. Treasury Secretary Scott Bessent emphasized that these conversions do not work under existing law. The government also flagged strategies involving partnerships, box spreads, dividend-issuance timing, swaps, and foreign-currency gains, though new rules were not immediately imposed.
Instead, public comment is being sought to potentially draft future regulations. Mike Kaercher of the New York University Tax Law Center welcomed the move as a necessary step to close loopholes that attract aggressive tax avoidance.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing