What the Treasury Is Targeting
Deputy Assistant Secretary for Tax Policy Kevin Salinger outlined the department's worries. "We're not here to be over‑broad or disruptive, but we are also not prepared to turn the blind eye to aggressive planning," he said.
Among the tactics being examined are 351 conversions, box-spread ETFs, products that produce ordinary income offsets, and funds that sidestep dividend income by rotating between different ETFs. At a Wall Street Tax Association event, Salinger and Senior Counsel Erika Nijenhuis stated that the Treasury cannot overlook the emergence of a market for transactions whose outcomes Congress likely did not anticipate. Salinger described pitches he has seen. "We have seen pitch decks where they advertise that if you invest a million dollars, you may get a $300,000 ordinary loss," he said.
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These strategies are often structured to exploit disparities between tax treatment of different financial products. For instance, box-spread ETFs use options to mimic Treasury bills but generate capital gains rather than ordinary interest income, which is taxed at a higher rate. Similarly, 351 conversions allow investors to shift assets into corporations without triggering immediate tax liabilities, a maneuver that can later produce artificial losses. Treasury officials have flagged these and other tactics as potentially crossing the line from legitimate tax planning to abusive tax avoidance.
Box-spread ETFs, for example, employ a combination of long and short options on the S&P 500 to create a position that behaves like a risk-free bond. The resulting profits are treated as capital gains, which are taxed at lower rates than interest income. This tax arbitrage has made them popular among wealthy investors, but Treasury officials argue it violates the spirit of the tax code.
Although these strategies remain technically legal under current rules, officials argue they undermine Congress's intent. The department is considering designating them as "transactions of interest," which would require investors and promoters to report them to the IRS, a move that could significantly curb their use.
The Numbers Behind the Warning
One of the funds getting attention is the AQR TA Delphi Plus Fund, run by AQR Capital Management. As of June 30, 2026, the fund held $6.6 billion in assets. Among the largest box-spread ETFs, the Alpha Architect 1-3 Month Box ETF holds $13 billion in assets, using options to mimic Treasury bill returns while classifying profits as capital gains rather than ordinary interest. Shares of Affiliated Managers Group Inc., a partial owner of AQR Capital Management, fell up to 6% in early afternoon trading.
What Comes Next
Treasury officials anticipate a thorough discussion with market participants before situations become entrenched and investors face greater peril. Salinger said, "We do not want to act in a way that rewards taxpayers or promoters who have crossed lines that should not be crossed and disadvantages taxpayers who have stayed within the lines." In response to a query about designating 351 exchanges as "transactions of interest," Salinger replied, "all the tools are under consideration for all of the transactions that we're going to talk about today."
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