# IRS Notice 2026-62 **Notice 2026-62** is a warning that the [[Department of the Treasury]] and the [[IRS]] issued on **September 28, 2026**. It lists investment-fund strategies that the government thinks produce tax results the law never intended, asks the industry for information about them, and says rules may follow, possibly reaching trades that have already been done. It came out the same day as **Revenue Ruling 2026-20**, which went beyond warning and declared one of the strategies taxable. A notice is not a regulation. It does not change what anyone owes. Its force is as a signal: the government has seen these trades, is deciding what to do, and will not promise that the answer applies only going forward. For the fast-growing business of [[Tax-Aware Long-Short Investing]], it was the first formal sign of a crackdown. ## What it covers The notice names no company or product. It describes two groups of strategies. **Exchange-traded funds.** ETFs can hand appreciated securities to large trading firms without paying tax on the gain, a feature Congress allowed so that funds could operate efficiently. The notice describes funds that use the feature for other ends: - **Conversions.** An investor swaps a personal holding of appreciated stock for shares in a new ETF, tax-free, and the ETF then trades the stock away, also tax-free, leaving the investor with a diversified portfolio and no tax bill. This is the trade Revenue Ruling 2026-20 addresses. - **Box spread funds**, which use options to turn what is in substance interest income into lightly taxed capital gains. - **Record-date trades**, in which a fund sheds another fund's shares just before the date that decides who receives a dividend, so as not to receive taxable income. - Funds holding commodities or digital assets that use the same feature to stay inside the limits on what kind of income a fund may earn. **"Tax-aware" funds.** These are private funds and individually managed accounts sold to wealthy clients. The notice describes three techniques that produce a recurring pattern of capital *gains*, taxed at low rates, alongside ordinary *losses*, which reduce income taxed at high rates: - pairing offsetting positions and closing whichever leg gives the better tax character first; - buying and selling currency contracts on the same day and choosing the tax treatment after the result is known; - ending swap contracts early or late according to whether they show a gain or a loss. The IRS wrote that some of these funds "appear to be primarily tax-motivated" and not aimed at an economic return from real investing. ## What it leaves alone The notice says that describing a product as "tax-aware" or "tax-advantaged" is not in itself a concern, and it sets the targeted trades apart from long-accepted practices such as selling losing investments to offset gains. That matters because the largest part of the tax-aware business does exactly that at very large scale, using borrowed money and short positions to generate *capital* losses. On the notice's own terms, that business is not the target. Press coverage tied the tax-aware section to one product in particular: the Delphi Plus fund run by [[AQR Capital Management]], which uses swaps and currency contracts to produce ordinary losses and held $6.6 billion in mid-2026. AQR has said its strategies are designed to operate within existing guidance and rules. ## The companion ruling **Revenue Ruling 2026-20** takes the conversion trade and applies two old doctrines, substance over form and the step-transaction rule, to look through it. The ETF is treated as a pass-through, the investor is treated as having sold the stock, and the gain is taxed. A revenue ruling states the agency's reading of the law as it already stands, so it can be applied to conversions that have already happened. ## What comes next - The notice says Treasury and the IRS may issue regulations, further rulings or notices, and may designate the strategies **transactions of interest** or **listed transactions**. Either label forces the investors and promoters involved to disclose them to the IRS; a listed transaction also carries penalties for failing to disclose. - It says the IRS may challenge these strategies in audits now, under existing law, without waiting. - It says future guidance could apply to completed transactions. - Public comments closed on **October 28, 2026**. ## How it got here | Date | Event | |---|---| | July 21, 2026 | At a Wall Street Tax Association seminar in New York, Treasury's Kevin Salinger and Erika Nijenhuis say the department sees a market in transactions with results Congress did not intend, call some of them "potentially abusive," and decline to bless any. | | July 22, 2026 | Treasury Secretary [[Scott Bessent]] posts that the government will not turn a blind eye to abusive Wall Street tax strategies. | | Late July 2026 | Kenneth Kies leaves as Treasury's top tax-policy official and acting IRS chief counsel. Salinger is reported to be taking both roles in an acting capacity. | | September 28, 2026 | The notice and the ruling are issued. Bessent writes on X that Treasury means to stop transactions designed to dodge taxes. | | October 28, 2026 | Comment period ends. | | October 29, 2026 | [[Ron Wyden]], the senior Democrat on the [[Senate Finance Committee]], writes to Bessent and IRS chief executive [[Frank Bisignano]] that the guidance falls short. | > [!quote] "I am alarmed by the exponential growth of these long-short accounts…" > — Sen. Ron Wyden, letter to Treasury Secretary Scott Bessent and IRS chief executive Frank Bisignano, released October 29, 2026 Wyden asked for two things the notice did not do: designate the long-short strategy itself, not only the ordinary-loss techniques, as a listed transaction; and apply the tax code's existing straddle rules, which deny a loss when the taxpayer holds an offsetting position with an unrealized gain. ## What to watch - **Whether a rule follows the notice.** Months before it was issued, New York University tax law professor Daniel Hemel said the IRS under this administration had shown little willingness to close loopholes. A notice with no follow-up would leave the strategies legal and merely warned. - **Whether the scope widens.** The fight between the notice and Wyden's letter is about whether the government goes after the narrow ordinary-loss products or the far larger capital-gains business. - **Who is making the decisions.** The IRS has had no Senate-confirmed commissioner since August 2025. Wyden and other senators have questioned the legal standing of the officials running it and have asked what would happen to rules and guidance issued under an official later found to be improperly appointed. - **The new Senate.** Democrats won control of the Senate in the November 3, 2026 elections. From January the tax-writing committee where Wyden is the senior Democrat will have a Democratic majority, with the power to hold hearings and demand documents on the subject. See [[2026 Midterms Hub]]. ## Why it's on the map Most tax avoidance by the very rich is not illegal, and most of it never gets a government response at all. This notice is a rare case where a strategy can be watched from invention to marketing to official pushback inside three years, with the firms, the sums and the officials all on the record. It also tests a claim that runs through this wiki's coverage of the [[IRS]]: that an agency short of staff and confirmed leadership can still announce enforcement but may struggle to carry it out against well-advised taxpayers. ## Connections - [[Tax-Aware Long-Short Investing]] — the strategy, how it works and how large it is - [[AQR Capital Management]] · [[Cliff Asness]] — the firm and the founder most identified with it - [[IRS]] · [[Department of the Treasury]] · [[Scott Bessent]] · [[Frank Bisignano]] - [[Ron Wyden]] · [[Senate Finance Committee]] - [[Capital Gains Tax]] · [[Internal Revenue Code]] · [[Tax Code Hub]]