Democrat’s Tax Proposal Takes Aim at ETFs

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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.

“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.

Read the full article.

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