IRS Issues Notice 2026-62 Targeting Six Wall Street Tax Strategies It Calls Potentially Abusive

The U.S. Treasury Department and the Internal Revenue Service issued Notice 2026-62 on September 28, 2026, formally targeting six categories of investment strategies that officials describe as potentially abusive tax avoidance tactics.

The notice signals a significant regulatory shift for the "tax alpha" industry, which has attracted over $90 billion in capital since early 2025. Treasury officials said some marketed products promised excessive loss generation, such as claims of 30 percent losses on investments, to offset ordinary income, a practice they deem inconsistent with the tax code.

The six categories targeted by the notice include Section 351 conversions, which involve transferring highly appreciated assets into an ETF to avoid capital gains taxes. The IRS now classifies prearranged conversions resulting in materially different portfolios as taxable exchanges.

Other targeted strategies include partnership exchange funds using Section 721 to bypass diversification requirements, box spread ETFs that convert interest income into lower-taxed capital gains, record date manipulations designed to eliminate dividend income, RIC income test avoidance, and tax-aware character conversion using straddles and foreign currency contracts.

The IRS reserved the right to label certain maneuvers as "transactions of interest," a designation that would require immediate and potentially retroactive disclosures from both promoters and investors.

Treasury officials clarified that the fundamental ETF redemption mechanism defined under Section 852(b)(6) remains protected. The crackdown targets coordinated plans to circumvent tax obligations, not routine fund management.

The regulatory action has created volatility for firms with significant exposure to tax-aware products, including asset managers like Affiliated Managers Group.