Professor Jeffrey Colon was quoted in an article by The Wall Street Journal discussing the tax proposal that relates to exchange-traded funds (ETFs).
Senate Finance Committee Chairman Ron Wyden’s proposal aims to tax ETFs’ use of “in-kind” transactions that currently avoids triggering capital-gains taxes. With such in-kind transactions, ETFs—bundles of securities that trade on exchanges—transfer appreciated stock, bonds or other assets to Wall Street intermediaries instead of cash.
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“ETFs have become big capital gains deferral machines,” said Jeffrey Colon, a professor at Fordham University School of Law who has researched this topic.
ETFs are able to avoid taxes with in-kind transactions thanks to a tax exemption intended for mutual funds, created long before ETFs existed.
“The ability of these funds to do in-kind redemptions of appreciated property is being weaponized and used in a way that Congress surely couldn’t have intended,” he said.