IRS Cracks Down on Crypto-Linked ETF Tax Strategy

The US Treasury Department and Internal Revenue Service (IRS) are scrutinizing a crypto-linked ETF tax strategy, potentially disrupting the $7 billion in-kind infrastructure boom.

Treasury Secretary Scott Bessent stated that agencies are 'serious about cracking down on transactions designed to dodge taxes or exploit our federal tax code.'

The IRS is concerned with structures using in-kind redemptions to achieve tax outcomes that may not align with the underlying economics of the fund.

The Treasury Department pointed out a rule governing regulated investment companies (RICs), which require at least 90% of annual gross income from qualifying sources, such as dividends and interest. Some ETFs claim they can exclude gains from assets outside these categories, including digital assets, when determining whether they passed the RIC income test.