Key takeaways from the Wall Street Tax Association panel with Treasury and IRS officials, July 2026.
Treasury and the IRS spent Tuesday morning walking through the tax-aware product strategies they are watching. It was a Wall Street Tax Association seminar with Kevin Salinger and Erika Nijenhuis from Treasury’s Office of Tax Policy, alongside partners from Sullivan & Cromwell, Fried Frank, and KPMG. No rules were announced. The message was that they are paying attention, and they want to talk before they act. Here is what stood out.
Treasury is concerned, but not moving yet. Officials said all the tools are on the table. Regulations, notices, revenue rulings, and a possible transaction-of-interest designation are all under consideration. They also said they expect a serious dialogue with the market before positions harden. Translation. Nothing changes today, but the questions are real and the clock is running.
They want to be targeted, not broad. Salinger was direct. They are not looking to be over-broad or disruptive, and they are not going to turn a blind eye to aggressive planning. They do not want to punish people who stayed inside the lines in order to catch the people who did not. That framing matters. It tells you they are trying to separate ordinary activity from abuse rather than swing at the whole category.
The heaviest scrutiny is on ordinary-loss products. The sharpest words were saved for funds engineered to throw off ordinary losses that wipe out income taxed at the highest rates, including wages. Officials said they have seen pitch decks promising something like a six-figure ordinary loss on a seven-figure investment. Their advice to investors was simple. If it looks too good to be true, it probably is. These structures lean on swap and straddle rules to split ordinary losses from capital gains. That is where I expect the pressure to land first.
Here is the short list of what else is on the radar.
- 351 conversions paired with a fast in-kind swap that replaces the contributed stock with the portfolio the fund actually wanted.
- Exchange funds or partnerships used as a feeder into a 351 conversion.
- Box-spread ETFs that turn what is economically short-term interest into deferred long-term capital gain.
- ETFs that flip between other ETFs to dodge dividend distributions.
- Funds using in-kind redemptions to push out non-qualifying assets like crypto and sidestep the RIC income tests.
- Selective foreign currency elections and identified straddles used to steer losses into the ordinary bucket.
The 351 exchange point everyone should hear clearly. This is the one I want to underline. Treasury was explicit that in-kind mechanics on their own are not the problem, and that ordinary tax-aware planning is fine. Loss harvesting, holding for long-term capital gain, and gifting appreciated stock to charity were all called out as expected and appropriate. The panel was just as clear that there are legitimate commercial reasons to seed a new ETF with securities instead of cash.
So the distinction is business purpose versus tax purpose. Seed a fund with securities for real reasons, into a strategy that actually matches those holdings, with no plan to flip them out, and you are doing normal ETF seeding. Plenty of funds get seeded that way, and that is not going away. The concern is a contribution that exists only to set up a quick, tax-free portfolio swap. What separates the two is business purpose, timing, and fit. If the securities go in for real reasons and stay put, that is ordinary seeding. If they go in only to be swapped out days later, that is the pattern Treasury is worried about.
What this means going forward. Existing anti-abuse doctrines are already available. Substance over form, economic substance, step transaction, and sham do not require any new guidance to be used. Treasury would not commit on whether future rules would apply prospectively or retroactively. It depends on the transaction and the form of action. So the smart move is not to wait for a rule. It is to make sure your structures carry a real business purpose, real documentation, and timing that tells an honest story.
Bottom line. Treasury is not trying to end tax-aware investing. It is trying to separate legitimate structure from tax-driven engineering. For anyone building or using these products, that line is the whole ballgame.
Based on the July 21, 2026 Wall Street Tax Association seminar, Developments in Tax Aware Financial Product Strategies. Direct quotes attributed to Treasury officials are drawn from public reporting on the event.
