Is Your "Tax Alpha" About to Become an Audit?

Hello and welcome back to talking well for first time viewers. My name is Michael Bannock. I am a managing partner at Ridholz. Alright, let's get into it. Making sure that clients don't pay a dollar more in taxes than the lower choirs has always been part of our job as advisors. But over the past few years it's become an industry of its own. There are ETFs seated with low-base stock through section 351 conversions. Funds using box breads to turn interesting coming to long-term capital gains. And long short stretch is built to throw up a steady stream of harvestable losses. And last week, Washington's signal that it's paying attention, Treasury and the IRS released new guidance going after 351 ETF conversions that they consider abusive. And they flagged box bread ETFs and related partnership structures as additional areas of concern. Treasury Secretary Scott Bessett framed it as a crack on transactions designed to dodge taxes. So, is this a one-off shot at a single strategy or the opening move in a broader push against tax aware investing? Which strategies are on solid ground, which are exposed, and what should advisors be telling clients right now? My guest today is Brent Sullivan, who wants tax alpha inside or a blog on tax and portfolio strategy. But first, a word from our sponsor. Today's episode is sponsored by Wisdom Trey. Building portfolios is one thing, but knowing where risks might be hiding is another. Wisdom Trey portfolio consultations give financial advisors a second set of eyes on the portfolios they're already managing. Their team can dig into your allocations, uncover potential concentrations and review holdings or securities selection to identify areas you may want to take a closer look at. You keep control of the portfolio. Wisdom Trey brings a research, tools and perspective to schedule an introductory call. Visit WisdomTree.com/PortfolioConsultations. Brent, welcome back. That's a pleasure to be here, Mike. All right, it has been an exciting week for you, I'm guessing. We're going to talk all about tax strategies today and how the IRS is now going to be considering them moving forward. We're not going to get into the definitions of a 31 maybe we'll do some of that later. Some of the box spread stuff, I'm sure that will come up, but I want to start here on September 28th. Treasury Secretary Scott Besson tweeted today US Treasury and IRS issued a notice on tax motivated investment strategies that makes clear Treasury is serious about cracking down on transactions designed to dodge taxes or exploit our federal tax code. When you saw that, what was the first thing that went through your brain? Well, I mean tax planning is as old as the tax code itself. So 1913 folks have been planning around taxes and so it's all about the difference between routine planning things like tax loss harvesting and aggressive planning, which would be like complex maneuvering to try to permanently avoid taxation inconsistent with what Congress intended. It's split between those two. It's nuanced, but I think that's the line that we have to walk. All right, but you didn't answer my question. What was your first thought when you saw this? It's missing nuance. There's just more going on here. I mean, planning is in some ways like quite boring and routine, right? I mean tax strategy is essentially about the assets you choose, where you put it, and then any transactions evolved so timing. So those three things, the asset, where you put it and the timing. And then to say like, you know, all tax planning is like, you know, nefarious or even to intimate in that direction is just like, you know, it's just a bit more going on here and a lot of the stuff is actually just quite boring. And so if you keep it boring, it seems like it's above board. If it's less than boring, maybe we better take a closer look. You know what? I was listening to your podcast yesterday. By the way, what's in your podcast? I forget. The Albatross. The Albatross. Okay. And you had on two, what's the one or two tax dorks that were on the show? I think it was two people. Two of them. Two, two awesome, very nerdy tax attorneys. Two of my favorite guys. All right. So if you want more in the weed stuff, I got to be honest. That was like listening to a book in Chinese. I didn't really understand much of it. But if you want more from the conversation, I would encourage you to go see that. All right, nuance. Before we get into like what actually, how this might impact our clients, how we think about giving advice in these different areas. How does it work from a legal point of view? Because we've been, there's been debate about closing the carried interest loophole for a long, long time, which is, you know, billions of dollars accumulatively. I'm guessing in unpaid taxes, maybe the wrong word, but whatever, whatever the gap would be between the actual rate and long-term gap gains. So how does, how does rule changes work between like, oh, I didn't know, like this, this needs to come from Congress. Or this is like from IRS guidance. How does that work? I have no idea. Okay, so not a tax attorney here. I'm an independent tax analyst, so just to be clear about that. But yeah, I mean, you said you didn't want to go nerdy on this. But I'll give you as much nerdy as you want. Just cut me off when I just go way too far. But the idea is that like in some cases has Congress, Congress writes a law. And then as part of that law, they might say, hey, we don't know all the details. Treasury, you decide. In other words, they delegate authority. And in those cases, Treasury can, can come in and write its own regulations. And it can interpret the law. And they're trying to interpret it in a way that's consistent with what Congress intended. And so with something like carried interest, we could start there. That's more like active Congress stuff. Like that is in the code. And then for, you know, Treasury cannot just be like, no, you can't do this. We're going to interpret the law differently. No, because Congress has got like that will chunk of the code dedicated to that. Now, in the case of something like 351. So we're talking about seating. It's actually a corporate reorganization thing. But the ETF industry is said, oh, if you want to see new ETFs with appreciated assets, you can use 351. That's IRC 351. To see the new ETF in kind. You could do that. But Treasury is like, nah, it's a little more nuanced than that. Like Congress has something in mind. Maybe the industry in certain corners, not the whole thing is doing stuff that maybe is not what Congress intended. So what, so what, so what did Congress intend when they passed this law? And when did they pass this law? Okay, so 351 is like from the 1950s, but it has an ancestor that is like, I, you know, decades older than that. So I would just read a case from 1940 that has the ancestor to 351 in it. And so this law or this chunk of the code is very old. But there's all these, all these tricks like gimmickry shenanigans like that industry will, you know, try to use this chunk of the code to say like, no, no, no, actually we can do all this, this tax deferral stuff. We can avoid tax, not permanently eliminate it. We can avoid it. And so in sometimes Congress was like, no, that's like not actually what we had in mind. So the original intent between 351 was to bootstrap new businesses. So you have a farm or you have a tractor. I have a barn like we can, we should be able to combine those assets and a partnership and start a farm together. We should not have to sell the tractor and sell the barn and then take the proceeds, pay tax and then start the farm. So that was the idea. It was like, we should just be able to start a business with the existing assets. Okay. So what happened in 2025, it started in 2023, but like in 2025, it exploded. Bloomberg has this nifty graphics showing that 351 conversions are booming. I think there's over 100 now or there was 100 something launched in 2025. There, it was seeded with 22 billion dollars cumulatively over time. What broke the dam? Was it somebody that said, hey, wait a minute. We could do this with the ETF. Like, where do we trace that to? Okay. So if I had to go all the way back to like the like 351 in the ETF context, I'd go back to custom baskets like 611 2019. So in 2019, SEC, not IRS, not, you know, was like, yo, if you want to redeem assets in kind from an ETF, you don't have to do so proportionally now, you can do it in an economic way using custom baskets. And so now ETFs are essentially redeeming whatever shares that they want within certain rules and economic substance and all that. But so I would trace this all the way back to 2019 and that's like right during that year, I think we saw the first 351 and that was an ETF seeded with appreciated assets from a private investor. That's like really what's changed here. And so 9 2019, 2020, 2021, this starts to pick up. There's like little fits and starts. And then, I think in 2024, the damper soap and Medfavor launches his and I think that gave it some popular appeal. It took like this strategy that folks had been using for years and made it more mainstream. And it's so weird. Like in 2022, I was writing about this and I was like, this is this is very awesome. It's obscure like maybe maybe you know one or two cases ultra high net worth can pull this off and it was like I did not anticipate that or at that time. I did not anticipate that this would go mainstream and that's like effectively What's been happening 24 25 26 so this went mainstream for a number of different reasons Previously the option of choice for advisors that wanted to diversify Existing securities into a broader basket of stocks and funds would use an exchange fund and That was generally Not an awesome experience Yeah, it depends. I mean like the exchange fund so yeah These are the difference between a 351 and exchange fund the first thing is like 351 takes the diversified portfolio and Puts it into a different wrapper so you're talking to usually about a separately managed account a broker to count It's got a bunch of stocks in it and now it's moving into the ETF wrapper no tax assuming you check a bunch of boxes For an exchange fund. We're talking about a concentrated position. It could be a home But in general, we're talking usually about one stock and then the Manager running the entire exchange fund takes a bunch of different individuals and puts all their shares together into a Partnership so 351 is into the ETF and then 721 The exchange fund is into the partnership But they do have the same sort of antecedents and what that means is like they refer to the same chunks of the code But it one is for just an ETF and once for or once for a corporation technically ETF is a corporation and the other ones for a partnership But I mean like the that was the main thing so different use cases because you can't just take an eight million dollar block of Nvidia and Put that into a 351 exchange unfortunately When I first when this first came on my radar it was from meb and it was 2023 I'm guessing maybe 2024 and I was over the moon excited and then I got to the part where There needed to be some level of diversification You couldn't have whatever the rules are more than four stocks that you're donating that make him more than 25% of it or again Whatever whatever those rules are so But so this blew up in popularity Because people were looking for a better solution to get diversification while deferring the tax liability Yeah, yeah, I mean you just jumped into my neck of the woods and it's like yeah I was also over the moon as soon as I was like oh people are gonna start doing this outside of like these really kind of like You know ultra-ident worth circumstances. I was like this is this is gonna be publicly available like that's crazy and the minimums were like you know Not unreasonable right. I mean I think at the time it was like you know, we'll start with like a million in contribution and So that was it made it sort of been democratized like an ultra high net worth strategy That's like what I saw from the outside, but you're right though. I mean, it's not like a single stock diversification strategy It takes a diversified portfolio. It makes it more diversified in some cases and like so another like I talked about like the tractor in the barn earlier And we're gonna start this farm. I mean, I think conceivably what could happen is like I contribute half of the S&P 500 You contribute the other half of the S&P 500 we put these two together and like collectively we're diversified individually and collectively We have exposed to the S&P 500 and like neither of us have paid tax going from A to B And I think that was more consistent with like what Treasury or Congress was trying to pull off when they originally wrote the thing But now I see all these shenanigans behind the scenes and I think the shenanigans are what Treasury IRS or like yo Come on, that's like that's not what Congress had in mind So before we get to the shenanigans and the real question is like all right We put our clients into one of these products do we need to Be scared do we need to consult our tax attorney like what does this look like we'll get to that and I'll use us as a real life example Because we did this with alpha architect so for a long time We have run a strategy internally That is a trend following model, right fairly basic it its intent is to avoid long bear markets which Terrible idea for a strategy they don't exist anymore, but Well, I guess the good news about a trend following was that it can it can survive a bull market But but that's that's the intent. Okay, if if there ever is a real bear market This is our press release valve for clients The problem with a trend following strategy in an SMA For taxable accounts is it's not tax-efficient There's turnover So what we did was we did a 351 where we moved these securities into the ETF And this way when there is turnover inside of the strategy and it's so long as our clients don't sell the ETF They're not paying taxes on The strategy internally until again if and when they sell the ETF Am am I following are we following the intent of the law or are we engaging in chicaneery? This seems like a pretty vanilla case To me like a pretty straightforward case Now again like I'm not a tax attorney. I'm not you know expressing an opinion on the specifics of this matter Or you know, and I haven't scrutinized it. You will be held liable But I it seems like a pretty routine application and so like one of the cases long time ago There were a bunch of core cases that said like tax-free diversification is really part of what or Congress went back and said tax-free diversification Is the perceived evil that we're trying to like get rid of or a bunch of attorneys said Congress was very very concerned about Tax-free diversification and so in other words, you know getting from one position to hundreds of positions without paying tax in Between and that was like the original thing that Congress got like so upset about like we cannot allow this to happen Using 351 as a backdoor to go from concentrated to diversified without paying tax reasonable Yeah, well, I mean they make the rules. I mean like, you know, what's reasonable? I don't like I mean, I'm I'm but a humble analyst like you like you read the rules It is my job to like figure out like how they actually work So so what is so what is the chicanaery some of the bad behavior that they Might be looking to crack down on Yeah, I mean, so yeah This is so important because you need to contrast like the application that you described to me sounds like Relatively straightforward. You got a diversified portfolio and let me ask you a follow-up question on yours So like I imagine you had a bunch of like separately managed accounts each were you know a bunch of different Individual clients each have their own, you know, let's say Vintage like they started at a different time and now you've consolidated all these strategies into one strategy It's professionally. Yeah, yes different different clients came in over different words of time Yeah, everybody it was the same strategy From account to account. So I mean, I imagine I imagine your lives operationally are simpler You know after you went from all the different accounts into a single account. I mean like is that is that true? Is that true? Well, we also we also are still running the strategy inside of the qualified account Yeah, yeah Yeah, I'm saying like I'm saying like yeah, I mean presumably your life's got easier once you consolidated all these things into an ETF I mean, it's great. Yeah, I mean the ETF has a lot of benefits that like are not even tax related and so one of them is just Professional management. We could do all these things in one place. Yes, we could take advantage of In-kind redemption and their technical tax, you know law reasons for that to take effect But like in general professionally, this is easier to manage inside of the wrapper I mean, it's just like kind of a cool thing But okay, that's a routine case. Let's talk about like really crazy stuff that I see and I track all these I got a website called 351.tax anybody can go look at the deals in the pipeline and the deals that have already happened I think I've got like 200 total between pipeline and what's already happened and if you click You know on any one of these funds inside of 351.tax you can see the portfolio progression So it started at like you know, whatever the seed contribution was a bunch of individual positions or maybe some really blocky positions And you can see how this is progressed over time and like this is all available just with like public documents like funds are Required to present like a portfolio composition over time. There's a very cool site Yeah, I just go grab everything and I scrape it and I just put it in like stacked bar charts so the people are just like Can see like what's actually happening so I'm very much especially with all this AI stuff now I'm very much in the show don't tell mode you show you give somebody like a block of tax They're not going to read it But if you're like this is just a nice chart. Let's look at the chart over time like that's the mode that I'm in now And so you can just look at how the portfolios have evolved over time And if you want like if you want to see the most egregious cases you start with the portfolios That are really blocky to begin with so I'm talking about what does block him in so maybe like just like too big Concentrated stocks and then like a couple funds and like you can tell that just like I thought you're not even I thought They're like restrictions on what you can contribute Yeah, so okay too important diversification rules So you have the 25% rule says no individual position can be more than 25% of the seed portfolio And then you have the 50% rule which says that the top five positions cannot be more than 50% of the contribution But do you see people even violating that like oh, they're not going to catch me or is that like you you literally can't even launch it Because there's some sort of like Wall that you're going to run into that would be like table stakes If somebody's violating like the 2550 that would be like you actually just kind of screwed up like that would be like the basics like if you get that wrong You know stuff. But what I do see is people trying to like artificially construct compliance for that. So if the goal is, I'm going to pass 2550, those diversification tests, and I don't have a portfolio that would normally do that. Well, hmm, can I do some funny stuff to get a portfolio that would pass those two tests? Like one funny stuff. So maybe you have, you know, some external assets, and maybe you can use them to borrow some diversifying assets. And so you take some concentrated positions, and you combine them with some, I don't know, some positions you acquired just to satisfy the 2550 tests. And then you shove this like very, again, blocky portfolio. That's a good idea. Oh, is it? I mean, like so, so, so, so now you've, now you've shoved this like sort of blocky portfolio into the ETF wrapper, and then low and behold, within 90 days, you have like used in kind redemption to get rid of the blocky positions. In other words, if I looked at this thing, beginning versus end, I'd be like, hmm, sure seems like you achieved tax free diversification without paying tax. And then, so that's the kind of stuff that I'm looking for. But what is the, what is the language actually say? Because what you described, there's, there's an obvious difference between what we did at Redholz and what you just described. Right? Like, there was a clear motivation for tax free diversification. What does the, we don't know if you had two to nerdy, but like, does the actual loss specify? What does the law say? Is it ambiguous or is it pretty clear? Well, it's, it's clear. It's ambiguity. So, sorry for that. But so the law has like, or the regulations actually, so, okay, so Congress wrote this thing. This thing is complex and very nuanced. And so they were like, regulators, Treasury, you get to decide how to fill all the gaps here. One of the gaps that they fill is that they set a plan. And so they said, if there is like design, there's grand ambition here to achieve something nefarious, that's not in the code. But they said, the way that they mentioned that is they said there, if there's a plan, if there's a plan to achieve an outcome inconsistent with Congress's intent, then that's when this thing starts to become. All right. So, so, so, if you're, so if you're a jackass and you do this 351 and you're borrowing and, and there's all of this stuff. And then on day three, on day three, you go into something that looks completely irregular or nothing like what you put into that. That would be, that would clearly define this was a plan. It's just not looking that good. You know, it's just doesn't look that good. And, but there, so this is where like the new note, so, so Treasury and IRS came out with two documents last Monday. And there was a notice and the notice was had some, it was essentially an RFP, like, you know, or RFC, like give us, give us comments on all these different subject transactions that we're interested in. That was the notice, along with the notice came a revenue ruling. And the revenue ruling was like, yo, we're just going to talk about section 351. And in what we consider sort of suspect behavior. And there were three things that they talked about in that document. The first one was a plan. And a plan is like the email communications behind the scenes, you know, like, you know, other steps that folks might have taken again borrowing or something weird like that to try to pass the 2550s. So that's a plan. The second thing they talked about was the timeliness, like shortly after the ETF launches, are you using 852b6? Are you using incite redemption to get rid of positions that were materially different? That's the third thing. So you had a plan, you had a quick turnaround of the portfolio, and then a portfolio that looks materially different. Those three things are just like, ah, you know, it starts to look a little weird, especially when you can see my stacked bar charts. And you're just like, uh, this thing looks way different than what you contributed. Why did you take those assets? If you were, if you were not planning to do this, it's the world so different from when your ETF launched. And so that's where they're starting to infer. They're trying to build this evidence stack of a plan. And of course, a plan is necessarily ambiguous. It takes like the spoke investigation per fund. And like, I think that's where it's where they're headed right now is inferring a plan based on the facts and circumstances. So I don't know what sort of resources the IRS has in terms of manpower to execute a widespread crackdown. I have no idea. Maybe they could leverage AM, I'm sure they can. Um, and I think I'm going to ask you to speculate unless, unless they've been clear on this, what would a potential crackdown, and especially a retroactive one, which I think they is lying to the use, what would a penalty potentially look like? Well, yeah. Okay. So the word retroactive is interesting here. So essentially, the ruling said, or maybe it was the notice, one of the two said essentially, like, this is our interpretation of the law today. And so what that means is that they can just apply today's law to already done deals within the statute of limitations, which for a lot of 351s is within the past three years. And so what they're saying is that the current law applies. And so it's, it's a, you know, retroactivity would apply if they made a change, but what they're saying is there's no change here. Like, this is how the law applies now. And so it's interesting for the most egregious examples out there that this might be a circumstance where that, you know, they get an examination, there's a challenge, there's a back and forth. And then the ultimate consequence of something like that would be as the ruling states is that the transaction would be taxable. And so there, you know, there are again cases where there was a large contribution of concentrated assets, maybe just not inconsistent with congresses intent. And then they get into the ETF wrapper. There's no recognition, nobody paid tax, but now treasuries say, yo, this might actually just be taxable. And it's interesting. The words that they use, this is nerdy, but I'll just say it like it's, they said that the ETF is just a conduit. It's just a means to an end, and the end would be like reshaping the portfolio without paying tax. And so it's interesting that they actually said that the counterparties on the trade would be like the individual who made the contribution and the authorized participant like James Green on the other side, which, which I was like, that's interesting. I mean, I just didn't anticipate that characterization, but they're saying, no, this is an essentially an exchange you did with an authorized participant, like a big grouper dealer. So wait, so they both, so I understand the individual client being on the hook. Yeah. What sort of monetary punishment would potentially exist for the market makers? Oh, no, nothing for the market maker. It was just an interesting characterization that they were just like, you're just using ETF as a tool like, and this is not for portfolio management. This was to achieve a tax free end. And so they're not saying that there's anything happening with the market maker. The market maker is like, kind of oblivious to the circumstances here at the individual investor. It's just the interesting that they said, oh, the ETF is just like a little pawn in your brand or chess game. And like, so that's just how they characterize it mechanically. But no, nothing, nothing, nothing on the market maker side or the broker dealer side. I want to move on to some other things that might come under scrutiny. Anything else on the 351 or did we cover most of it? No, that's most of it. Okay, box breads inside of ETF, the ETF wrapper, right? They're not going, okay. So I believe it was our friends at Alpha Architect that popularized the strategy. That's right, right? Yes. So they have an ETF ticker is BLXX. It is basically cash. It's one to three month. It's one to three month exposure, except instead of generating income, they are using box breads to synthetically get you the same exposure as if you were holding that instrument. Okay. So again, instead of paying taxes on the income, it is now deferred until if and when you decide to sell the ETF. Strategy has almost $15 billion in assets. It's been a home run, an absolute home run and there's of course all sorts of others right now. What's the problem here or how would they potentially crack down on this one? Yeah, there's a couple of different angles on box that are interesting to me and this is definitely unsettled territory. It's like, you'll see why it's just a second, but there's a couple different things. So there's the idea that this thing that a box spread is essentially like a zero coupon bond. In other words, its value is sort of its return is linked to its time value money. And that's like a really important term. And what it means is that if something's value or its return is based on the time value of money, then it should probably be taxed as income. And that's subject to a chunk of the code called 12.58. And part of 12.58 is if it's marketed in this way and if it's marketed as a tax-efficient vehicle and its main return is based on the time value money and plus a couple other things, then it should be taxed as ordinary. Now that's one chunk of the code, that's section 12.58. That's maybe one way that that gain could be recharacterized as ordinary in this thing. Again, that's like pretty facts and circumstances. It's unclear that that even applies to box BOXX anymore. And there's just like a bunch of different implementations. There's different ways you can roll this thing. But one area of attack is 12.58. So you'd recharacterize long-term capital gains or capital gains into ordinary income. That's one thing that could happen. Again, I'm not even clear at this point that it applies to BOXX. There are complex reasons for that. But the second thing that's interesting here is, oh shit, I just lost my train of thought because I was unpacking this really gnarly thing. But I mean, yeah, there's a human behind here who has some, like, storm all these thoughts in my brain, you know? I was just, I was just saying this is the practice of the day, this, you know, talking to a microphone, kind of hard. It's hard, yeah. But I mean, like, yeah, what was the other thing? Like, there's a bunch of different, uh, oh, oh, yeah, so the other point that I wanted to make was like, it's just strange that like, you know, you would have maybe different taxation of the same strategy inside of the ETF wrapper and outside of it. So like, for instance, if I have a bot, like if I open an interactive broker's, broker's account, and I'm just like trading box spreads, I can do that. It's a four like an options trade, essentially a synthetic long and short with the spread in between trades, essentially like a zero coupon bond. If I open an account and I do that myself, it's capital, like without a doubt, it is capital. It's but, oh, things change now if it's in the ETF wrapper. That's interesting. I mean, just like technically speaking, why would these, why would the exact same strategy have two different tax treatments if it's in the wrapper versus out of the wrapper? So I'm interested in the outcome of that. I mean, that, that is very interesting to me. Oh, interesting. Yeah. So it's, it sounds like that would require new laws. That was it. Okay. Thank you. You're bringing me back home now. But that was exactly it. So it's just like, oh, well, if we're talking about a structure that's tasked as capital. Okay. Well, can, can treasury act? Can they say that no, no, no, actually this should be ordinary? No, that's interesting to me. Like, I mean, that seems like you require a regulation change. And if there's a regulation change, now we're talking about a request for comments, period, notification, typically prospective application, not always, you know? And so like these are the kind of things that would happen if there was an actual change in regulation, not just a change in interpretation of regulation. So these are the two different things happening with 351 popping the stack back to that one for a second. That's, they're saying like, no, no, no, this is, we're saying this applies now. This is an interpretation of law and we're going to apply it today with the box thing. It's just different, you know, as you described it, it's clear that they're very different animals. Yeah. Yeah. All right. Yeah. That's the thing. It's just like does it apply? When does it apply? Who has the authority to make it apply? It's just like all this stuff. Box is like a very weird animal to me. It's very, like, I know there's a lot of like spicy posts from very smart people on the internet. And I'm just like, I just, they're just some inconsistencies that I'm very, very curious about in how the way the code is written and just when it applies and to whom it would apply. So it's not clear cut at all. Okay. Is there any reason for advisors to be worried that the long short category might be next and of course the long short category has been very recently extremely limited in its application given the fact that fidelity is not supported in any longer and Schwab raised the minimum to $10 million. You could talk about those if you if you'd like, but is there anything that advisors need to know or should know as they anticipate what other changes might be coming down the pike? Well, I want to ask you about your interview in Miami earlier this year. I mean, that was like, uh, funny, I mean, that was a great interview. I asked him if he was going to run pull us. How do you define run pull? I mean, you know, like, I mean, it's just like, you know, but okay. So there's like two different, two different areas that long short like sits in. Okay. One area is like the capital strategies. So we're talking about gains harvested gains and losses harvested and all the characters short term and long term capital gains that that's one thing and like treasury seems like not interested in that like it's not making the top list at all. And then there's another flavor of this where you have a difference between capital gain and ordinary loss difference between capital and ordinary, different deal. All right. So you try my Delphi? Maybe. I mean, there's a lot of them. Delphi, like comes out as like one of the strategies that are one of one of the funds that uses or a strategy that could produce that results have to be really careful about language here. But like, All right. So let's not, let's not be specific to AQR because there's other, there's other players doing this. But there are a lot. Yep. But the idea as far as I see it, to me, this is like the, the holy grail. It's like, wait a minute. I can, I can literally lower my income tax bill. And of course, the outcome of the strategy is just put that to the side, right? Let's, no, I don't think anybody wants to lower their tax bill for a shitty investment strategy. That's very stupid. All right. So we're not going to invest some strategy itself because that's a whole other conversation. There are, again, rules in the tax code in terms of what you are able to do with different financial instruments inside of different corporate structures that allow for this thing. I guess fairly explicitly in terms of what you're able to do and not do, would this be the type of thing where they say, maybe this is going to love it too far. Like we need to change the law here. Yeah. What do you think about what's going to happen there? It might be, it might be. Yeah. I mean, it's one of the cases they're, they've kind of like, there's a very like technical thing here I won't bore you with. But like, essentially, like, they've kind of like the regulators who are responsible for like how these things, they're, they're responsible essentially for removing abuse situations. So if traders get like way too clever with how they're structuring things to like, take no risk and get a tax benefit, that's like the, a lot of the code is just like trying to eliminate search situations like that. But are there always people that are going to take advantage of whatever the laws are to benefit themselves? Like, isn't that the history of the tax code? Yeah, yeah, yeah, yeah, yeah, totally, but, but, but, I mean, like the nuance here is that you have sort of like this good trade off between risk and tax benefit in certain cases where it's like, yeah, I mean, if you made an investment, it's like, you know, created investment, the investment loses money. You are allowed to harvest that loss and apply it against a gain elsewhere. Like that is a good trade off between risk and reward. And I think a lot of times what happens is that traders get really clever and they construct a situation where they lose no money and they get a tax benefit. And that would be like the spectrum of things happening here. And like, with the case of, so now like what's happening with the trader funds, the long short trader funds, these are the hedge funds that Treasury obliquely mentioned in its notice. What's happening there is something in between. So there are strategies that are, in some cases, incredibly profitable. And so that's remarkable. Creates a foundation of profit-seeking behavior, economic substances, what some folks call it. Like a potentially like an alpha strategy, potentially that also has this kicker, and it's not just a kicker. It's kind of like an incredible where you can literally lower your tax bill in the current year. Yeah, yes, yes, I mean, like there are implementation things that are happening in the scenes. I mean, yes, I mean, like you take a lot of risk. I mean, it's interesting, like I've seen like, you know, opinions on some of these strategies. And like the opinion always starts with these strategies make money and lose money. And like there might be some tax benefits and implementation, but really we're talking about risk and tax trade off. And like again, it's somewhere in between that spectrum that I laid out earlier, you know, outright risk of reward, no risk, and some reward. These strategies are somewhere in that spectrum in between. And Treasury seemed particularly interested in the difference between capital gain, so you can defer, you can get preferential capital gain, treatment, lower rates, and ordinary loss. The ordinary loss is really interesting. It's written in that specific way to prevent a different abuse situation. Why do I say this? I'm getting really abstract. Because it looks like it looks like Treasury through regulation sort of painted itself into a corner where it's like, oh, the regs are written to prevent abuse. But maybe we have this other situation that we don't like now. So we're going to have another clause on anti abuse for further anti abuse. If so, now we're talking about again, a request for a comment period, usually, usually prospective application could be different in this case, but it's just different. So we're going to have to write new words, it seems like to me. For these funds that we're describing, of course, 30 seconds ago, I enthusiastically raised my hand and said, yes, please, there's a million things to consider. The alpha is obviously not guaranteed with any strategy, right? There's all sorts of tax considerations in terms of, all right, what's the tax benefit today versus the tax deferral and the illiquidity, and I mean, there's a million things to consider. So that ringing endorsement, I just wanted to walk back a little bit. Can Congress or IRS or Treasury, can they just point to laser at an asset manager and say, you're done this like, or does it have to go through the proper channels? I mean, Congress can do whatever it wants. I mean, like, you know, if Congress is just like, oh, you know, it turns out we don't even want long term capital gains or capital gains treatment on anything anymore, everything's going to be ordinary, everything's going to be taxed the same as wages. Like Congress, as Count Congress can do that, if they pass the law that says that, I mean, good luck passing that law, but if they pass the law, then that law federates across, you know, all in all bodies beyond that, you know, and so like Congress has the ultimate authority here. And of course, like, you know, Congress writes a bill that has to be passed by both houses and then the president has to sign it. If it has gone through that process, then at that point, the law like sort of federates through the entire legal system, and then regulators can say like, oh, are there any, you know, nooks and crannies that we need to fill in? That's our job as regulators. Maybe there's other things. the industry. history is still too clever. But the ultimate authority here is Congress, Congress writing and then the president's signing the bill. If that happens, you can imagine what it would take for something like that to happen. Then that is the word. And then everything emanates from that. And so, yeah, in theory, could they be like, yes, this one specific company, you can no longer do business. It would be like anti-democratic and it would be tough to imagine the president signing that. But yes, it's possible. But then there would be challenge. I mean, there would be challenge. I mean, like, there would be like a company versus, you know, Supreme Court, you know, it would probably go always, Supreme Court kind of thing. But again, we're way beyond like what I normally talk about. Is this the type of thing that we're going, it's going to, we're going to sort of forget about it until they pop their head back from underwater in 18 months with more clarity or is this going to be the type of thing where we sort of hear dribs and dribs on the way to some sort of resolution? Yeah, I mean, I think they're, they're trying to be really deliberate and delicate with the way that they apply new regulation because I think they're aware that new regulation, even the hints of regulation has like a chilling effect on the market. And so right now, we're in the comment period. And so through the end of October, market participants, I guess anyone, but market participants generally asset managers are going to be able to submit comments explaining their views and, you know, how they're, you know, taking risk and seeking profit and doing all those things and how that comes out. Are you going to get called to get called in front of Congress? Oh, I don't think they care what I have to say. I mean, like, I'm interested as an analyst here, and I'm just like, but I mean, there are folks far more qualified than me, you know? All right. Well, for advisors that have to pay attention to the story and want to lean on you and the great content that you produce, how do they find your work? Oh, tax alpha insider.com. And also like, as you know, like I'm super obnoxious on, on social, you can find me on LinkedIn and then on X increasingly more, I don't know. I don't know how, how do you feel about X? It's so, it's weird to me. I have a love hate relationship with it. I think like most users. Yeah. Yeah. But I mean, whatever. I mean, I'm generally accessible. I've got a contact form on my website. People do send me a fair number of individual letters. I can't respond to all of them, but I do read all of them. So pretty interesting. Okay. All right. Well, exciting times. Brian, I appreciate the time. Thank you. You bet. This week, it pays extra to be a MyLos Rewards member. Through October 14, members get $10. MyLos money. When you spend $200 or more on an eligible purchase during MyLos money days, also using your MyLos Rewards credit card, even better. That's an additional $20. MyLos money. Use it to save on your next Los Hall. Exclusions, restrictions, and more terms apply. C-Los.com/MyLosMoneyDaysForDetails. MyLosMoney expires 30 days after issuerments, subject to change, credit offers subject to credit approval.