A $7 billion crypto ETF plumbing boom just ran into the IRS

According to reporting by CryptoSlate, the Internal Revenue Service and the Treasury Department are scrutinizing a crypto-linked exchange-traded fund tax strategy. Authorities are examining whether certain regulated investment companies can use in-kind redemptions to bypass an annual gross income test, which requires funds to derive at least 90% of their income from qualifying sources to maintain favorable tax status. The notice highlights funds holding commodities or digital assets directly or through grantor trusts that use appreciated property in in-kind redemptions to exclude embedded gains from the income calculation. Treasury Secretary Scott Bessent stated that the agencies are cracking down on transactions designed to avoid taxes. This review follows a period where in-kind transfers expanded significantly, including billions in Bitcoin and Ethereum redemptions by BlackRock products during the first half of 2026, though those specific funds operate as grantor trusts. Regulators are considering potential guidance, regulations, or retroactive actions, while the IRS noted it can challenge strategies during examinations under existing law.