The US Treasury Department is currently reviewing at least 87 funds launched through Section 351 exchanges, collectively managing approximately $18 billion in assets. These transactions allow investors to transfer appreciated securities into a new ETF without triggering immediate capital gains tax, raising questions about their compliance with the spirit of the tax code. Internal discussions at Treasury about potential guidance began as early as February 2026, with officials participating in seminars where they questioned the validity of these transactions. No formal prohibitions or new regulations have been issued as of late July 2026, but restrictive guidance could dry up the pipeline of new fund launches using this strategy and force asset managers to find alternative approaches.
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