A $7 billion crypto ETF plumbing boom just ran into the IRS
Summary
The Treasury Department and IRS are examining whether some crypto-linked ETFs use in-kind redemptions to exclude unrealized gains from the 90% income test required for regulated investment companies. Regulators requested information and may issue rules or guidance, potentially with retroactive effect, but have not banned the strategy. The scrutiny is distinct from stand-alone Bitcoin and Ethereum trusts such as BlackRock’s IBIT and ETHA, which are not subject to that RIC test. The IRS also rejected certain prearranged ETF conversions as taxable exchanges. The inquiry could prompt crypto-linked fund managers to reassess tax positions and ETF structures.
