NEW YORK — The U.S. Treasury Department is evaluating tools to address high-profile tax strategies it views as potentially abusive. Officials conveyed these concerns at a Wall Street Tax Association seminar on Tuesday.
Kevin Salinger, Deputy Assistant Secretary for Tax Policy, and Erika Nijenhuis, Senior Counsel, identified specific products under scrutiny. These include 351 conversions, box-spread exchange-traded funds and funds designed to avoid dividend income by flipping between other ETFs.
Another category of concern involves products that offset ordinary income. These strategies use financial engineering to exploit rules within the U.S. tax code, allowing wealthy investors to reduce or delay tax obligations.
The Treasury has previously voiced concerns regarding 351 conversions, which enable investors to convert a portfolio of assets into an ETF. This allows rebalancing without realizing a capital gain, deferring tax liabilities.
Products generating ordinary losses are among the more controversial in the tax-aware industry. These aim to eliminate income subject to the highest tax rates, including wages. The AQR TA Delphi Plus Fund, for example, held $6.6 billion as of June 30 and recorded ordinary losses equal to 28 percent of its capital invested last year.
Salinger said the Treasury is not prepared to ignore aggressive planning. He added that the department seeks to avoid rewarding “taxpayers or promoters who have crossed lines that should not be crossed.”
These “tax alpha” strategies have attracted significant capital, with over $90 billion flowing into such products since early 2025. This increase in transactions has prompted the Treasury to scrutinize results that Congress did not appear to intend.
Officials did not announce new guidelines. Instead, they expressed an expectation for “a serious dialogue with the market before positions harden,” aiming to engage with the industry before implementing new rules.
