IRS Reviews Tax Strategies as Crypto ETF Redemptions Reach $7.2 Billion

The Internal Revenue Service (IRS) and the Treasury Department are reviewing tax strategies used by regulated investment companies that hold digital assets. This review comes as two BlackRock products, iShares Bitcoin Trust ETF and iShares Ethereum Trust ETF, have recorded a combined $7.2 billion in in-kind redemptions during the six months ended June 30, 2026.

The iShares Bitcoin Trust ETF had $5.49 billion in Bitcoin (BTC) paid in kind for share redemptions, while the iShares Ethereum Trust ETF had $1.72 billion in Ether (ETH) redemptions. The review centers around whether some regulated investment companies are taking advantage of a tax treatment that allows them to avoid recognizing embedded gains at the fund level.

This strategy is based on Section 852(b)(6), which generally allows qualifying regulated investment companies to distribute appreciated property in redemptions without recognizing the embedded gain. The review does not announce a ban or final rule, and it does not name specific ETFs, sponsors, or transactions as violating the law.