IRS targets 351 exchange ETFs, drawing lines around a key tax loophole
As seen on the 24/7 Wall St. homepage on September 28, 2026.
The 351 exchange is how holders of concentrated, low-basis stock roll into an ETF without triggering gains, and Bloomberg's ETF analyst flags the IRS drawing lines around it. Anyone with a pending conversion should read the notice first.
IRS issues notice aimed at 351 exchange ETFs. Sounds like it’s just cracking down on ones that break from spirit of law but I’m just seeing this, curious @TaxAlphaInsider thoughts. Story via @justinaknope https://t.co/JQXwcIFiOc
- Replies2
- Reposts1
- Likes9
Continue ReadingShow less
The 351 exchange is the mechanism that lets holders of concentrated, low-basis stock roll their position into an ETF without triggering a taxable gain. The IRS notice signals the agency is watching how that structure is being used and is drawing lines around what it considers compliant.
Bloomberg ETF analyst Eric Balchunas flagged the notice on September 28, noting it appears aimed at vehicles that break from the spirit of the law rather than those using the structure as originally intended. His read is preliminary, and he tagged tax specialists for a closer look, which suggests the full implications are still being worked out.
For anyone with a pending 351 conversion, or for advisors who have been building strategies around this structure, the notice deserves a read before any transaction closes. The IRS drawing attention to a specific ETF mechanism is a material development.
The tweet drew modest early engagement but nearly 5,700 impressions, a sign the topic is resonating with a specialist audience even if the broader market has not yet picked it up.