At a Wall Street Tax Association seminar on July 21, 2026, Treasury officials discussed various strategies involving regulated investment companies in which Treasury has taken an interest. The next day, Treasury Secretary Scott Bessent posted on X about “too good to be true” investment strategies. Although Treasury did not announce formal guidance, the discussion generated extensive commentary—and some market reactions.
Reportage, including on “increasingly popular” § 351 diversification strategies involving ETFs, below the fold.
Andrea Shalal, U.S. Treasury Won’t Tolerate ‘Abusive’ Wall Street Tax Strategies, Bessent Says, Reuters (July 21, 2026)
[T]he officials stopped short of announcing new guidance but said they expected a serious dialogue with the market before positions hardened and investors were placed at more risk.
The products under scrutiny include so-called 351 conversions, box-spread exchange-traded funds, products that offset ordinary income, and funds that avoid dividend income by flipping between other ETFs . . . .
Kelley R. Taylor, Kiplinger, Popular Capital Gains Tax ETF Strategy Catches Treasury’s Attention (July 23, 2026):
In a Section 351 ETF transaction, investors contribute [an already diversified portfolio of] appreciated securities during the initial launch phase of a new exchange-traded fund. . . .
No single stock makes up more than 25% of the portfolio [per Treas. Reg. § 1.351-1(c)(6)(i)]. . . .
Because the contributed portfolio was already diversified before the transfer, the investor generally defers [gain on the exchange for ETF interests].
Stephen Foley, Amelia Pollard & Claire Jones, U.S. Treasury Sends Warning to Hedge Funds over “Tax Alpha” Strategies, Fin. Times (July 21, 2026):
The shot across the bows [of providers of “tax-aware investment strategies”] led to a 7 per cent fall in shares of Affiliated Managers Group . . . .
Related TaxProf Blog coverage:
- WSJ: Stock Gains Without All The Taxes? (June 15, 2026)
