Treasury and the IRS are asking whether some exchange-traded funds that hold digital assets use in-kind redemptions to sidestep the test that keeps them taxed as regulated investment companies, or RICs. The question sits in Notice 2026-62, which CryptoWatchDesk last covered on Monday when it and Revenue Ruling 2026-20 were released. Comments are due by 28 Oct.
Related: Monday’s report on Notice 2026-62
The story is about tax treatment, not a ban on in-kind plumbing. To keep RIC status, a fund must earn at least 90% of its gross income from qualifying sources. According to the notice, some ETFs that hold commodities or digital assets, either directly or through a grantor trust, hand appreciated assets out in redemptions under Section 852(b)(6) and treat the gain they avoid as outside that 90% test. The agencies have asked for comments on whether that position holds.
The amounts moving in kind are now large. BlackRock’s iShares Bitcoin Trust (IBIT) distributed about $5.49 billion of bitcoin through in-kind redemptions in the first half of 2026, and its iShares Ethereum Trust (ETHA) about $1.72 billion of ether, CryptoSlate reported on Tuesday, citing IBIT’s latest quarterly filing. That is about $7.2 billion between them. IBIT also took in about $9.36 billion of bitcoin through in-kind creations over the same period.
Those figures show how much moves in kind. They do not show that any fund took the tax position under review. IBIT and ETHA are grantor-trust products rather than 1940 Act funds, so the notice’s RIC question applies to the fund wrappers built on top of such assets, not to the trusts themselves. The SEC approved in-kind creations and redemptions for spot crypto exchange-traded products in July 2025. Until the comment period closes, sponsors and authorised participants will keep running baskets, and their tax advisers will read the notice against each structure.
Produced by the Crypto Watch Desk newsroom using AI tools. This article is for information only and is not investment advice.