IRS Issues Warnings Against Tax Deferral Strategies
The agency released new guidance in September 2026 targeting specific investment products that may violate tax law.
Updated on Oct. 29, 2026 in Taxes
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In late September 2026, the Internal Revenue Service issued Notice 2026-62 and Revenue Ruling 2026-20 to address concerns regarding novel tax-alpha investment products. The agency warns that certain strategies currently utilized by investors do not align with established Congressional intent for tax planning.
Why it matters
The IRS is scrutinizing products that rely on offsetting positions or stock transfers to generate capital gains and losses. Officials are investigating whether these strategies are being used to inappropriately defer taxable gains rather than following original legislative goals.
There are currently 116 ETFs launched using 351 exchanges that account for approximately $21 billion in assets. Meanwhile, Affiliated Managers reported a $75 billion asset increase in 2025, reaching a total of $189 billion by year-end.
The players
Internal Revenue Service
The agency is the revenue service of the United States federal government responsible for collecting taxes and administering the Internal Revenue Code.
The details
Investors have been using 351 exchange ETFs to transfer appreciated stocks into newly formed vehicles to defer taxable gains. Additionally, some hedge funds employ a combination of leverage and straddle option strategies to conduct long/short tax loss harvesting, prompting further regulatory review.
Timeline
Opportunity Zone Funds were first rolled out in 2017.
ETF rules were amended for stock transfers in 2019.
The One Big Beautiful Bill Act was passed in 2025.
The IRS issued Notice 2026-62 and Rev. Rul. 2026-20 in late September 2026.
The IRS comment period regarding these products closed on October 28, 2026.
Market Dynamics
This regulatory scrutiny follows the legislative environment established by the One Big Beautiful Bill Act. The IRS is currently applying oversight to investment strategies that have proliferated in the period following that legislation's passage.
Investors currently utilizing 351 exchange ETFs or complex straddle strategies may face future shifts in tax liability if the IRS issues new restrictive guidance. These individuals should consult with financial advisors to assess the risk of their current portfolio allocations.
The takeaway
Taxpayers should remain cautious when utilizing investment strategies that rely heavily on sophisticated deferral techniques. The evolving regulatory landscape suggests that products designed to bypass traditional tax intent may soon face greater scrutiny and potential limitations.
Further reading
For more insight into how regulatory changes impact investment accounts, visit Taxes.
Source note: This article includes information reported by Chief Investment Officer.
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Should federal regulators impose stricter limits on complex investment strategies used to defer tax bills?
