The U.S. Treasury and the IRS have issued new guidance targeting Section 351 exchanges used by wealthy investors to defer capital gains taxes when creating new ETFs. Treasury Secretary Scott Bessent stated that these conversions “don’t work under existing law” and represent transactions designed to dodge taxes. A Bloomberg analysis found that 22 billion dollars in ETFs have been created for this purpose, deferring as much as 6.5 billion dollars in capital gains, with activity accelerating significantly since 2024. The IRS and Treasury are requesting comments on the notice by October 28.
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