For three years Wall Street's hottest product wasn't a stock, a sector or even an AI trade - it was losing money. Specifically, losing it in a very precise, very engineered way so that the "losses" could be handed to the IRS while the portfolio itself kept compounding. But now the taxman has finally noticed.
On Monday, Treasury and the IRS released Notice 2026-62 and Revenue Ruling 2026-20, a double-barreled warning shot at the "tax alpha" industry. Among the targets: strategies that help wealthy clients harvest losses to shelter ordinary income - the salaries, bonuses and wages taxed at the highest rates - a niche best known through AQR's Delphi Plus, the flagship of what is now the world's largest hedge fund, Bloomberg reports.
The punchline, and the part that should be making some family offices sweat: the IRS said any guidance it ultimately publishes "could apply retroactively" to transactions that already took place.
What the IRS is going after
The notice reads like a greatest-hits album of structured tax trades. According to the text, Treasury is studying (and may designate as listed transactions or "transactions of interest"):
- Tax-aware funds that manufacture capital gain / ordinary loss mismatches - i.e., gains that get taxed at the lower cap-gains rate while losses are ordinary and offset wages
- Same-day acquisitions and dispositions of foreign currency forwards (hello, S
