The Treasury Department and IRS issued a notice on September 28 flagging tax-motivated investment strategies involving digital assets. It is not a ban: the notice, Notice 2026-62, requests in
The Treasury Department and IRS issued a notice on September 28 flagging tax-motivated investment strategies involving digital assets. It is not a ban: the notice, Notice 2026-62, requests information on the practice and leaves open what action, if any, will follow.
The agencies identified digital assets as one area where fund managers may be stretching tax provisions beyond their intended purpose. The notice points to in-kind redemption strategies used by regulated investment companies, funds that must derive at least 90% of annual gross income from qualifying sources to keep their favorable tax treatment. Regulators could respond with new regulations, additional rulings or other guidance, and could designate certain arrangements as transactions of interest or listed transactions, classifications that carry heightened reporting requirements.
Any action could be prospective or, where legal authority allows, retroactive to transactions completed before guidance is issued. The IRS also warned that it can challenge an abusive investment-fund strategy during an examination under existing law, without waiting for a new rule.
A companion Revenue Ruling 2026-20 rejects prearranged Section 351 transactions in which investors contribute appreciated securities to an ETF and quickly redeem, emerging with a different portfolio without recognizing the embedded gain. Treasury Secretary Scott Bessent announced both documents in a post on X, writing that the agencies were “serious about cracking down on transactions designed to dodge taxes or exploit our federal tax code” and that the Section 351 conversions “don’t work under existing law.”
The warning lands as in-kind ETF plumbing has grown quickly. BlackRock’s quarterly filings show its IBIT (iShares Bitcoin Trust ETF) distributed about $5.49 billion of Bitcoin through in-kind redemptions in the first six months of 2026, roughly $3.85 billion of it in the second quarter, and received about $9.36 billion in kind. Its ETHA (iShares Ethereum Trust ETF) distributed another $1.72 billion of Ethereum, taking the two products to about $7.22 billion combined over the period.
Those trusts sit outside the specific test the notice targets. IBIT and ETHA are grantor trusts for federal income-tax purposes, so gains and losses pass through to shareholders rather than being subject to the RIC income test at the center of the notice. The filing figures show the scale of the infrastructure, not use of any flagged strategy, and no fund has been identified as using it.
