IRS Targets $7 Billion Crypto ETF Tax Strategy Boom

The Internal Revenue Service (IRS) is scrutinizing tax strategies used by crypto-linked exchange-traded funds (ETFs), according to a recent notice from the Treasury Department.

As part of its campaign against structures designed to avoid taxable gains, the IRS is looking into whether some ETFs are stretching tax provisions beyond their intended purpose.

The concern centers on RICs, or regulated investment companies, which include much of the US ETF industry. To preserve their favorable tax treatment, RICs must derive at least 90% of annual gross income from qualifying sources.

Treasury said some ETFs argue that they can exclude gains from assets outside those categories when calculating their income. This could allow an ETF to limit its income subject to the 90% threshold regardless of its actual economic income.