Treasury Secretary Scott Bessent Targets Wealthy ETF Tax Dodges
Treasury Secretary Scott Bessent and the IRS issued new guidance to block wealthy investors from using ETF conversions to avoid capital gains taxes.
U.S. Treasury Secretary Scott Bessent and the Internal Revenue Service issued new guidance and a revenue ruling to eliminate tax-deferral strategies used by high-net-worth investors. The crackdown targets the misuse of Section 351 exchanges, a process where investors create new ETFs with appreciated stocks to diversify portfolios without triggering taxable gains.
Regulators are specifically targeting transactions where an ETF serves as "merely a conduit" by distributing securities shortly after they are contributed. Bessent stated that these conversions "don't work under existing law" and warned against "abusive Wall Street tax dodges."
While legitimate Section 351 transactions remain permitted, the IRS is increasing scrutiny of transfers to partnerships and "box spread" strategies. The Treasury and IRS are accepting public comments on the notice until October 28.
