The Value Of Assessing Clients' "Tax Risk Tolerance" Amidst IRS Scrutiny Of Tax-Aware Investment ...
Adam Van Deusen talks with Jeff Levine of Kitces.com about IRS Revenue Ruling 2026-20 and Notice 2026-62, which target certain tax-aware investment strategies, and how advisors can weigh a client's "tax risk tolerance" in gray areas.
The gist
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Levine explains Section 351 ETF conversions: clients contribute diversified appreciated securities, meaning no position over 25% and fewer than five positions under 50%.
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Levine says Revenue Ruling 2026-20 shuts down egregious uses, like buying $800 million of an index ETF to diversify a $200 million position tax-free.
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Notice 2026-62 flags partnership-then-351 setups, box spread ETFs, dividend-dodging rotations, and strategies turning ordinary losses into capital gains, and opens a comment period.
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Levine argues advisors should judge tax risk like investment risk, weighing both tolerance and capacity, including back taxes, interest, penalties, audit hassle and peace of mind.
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His key takeaway: these strategies will reach clients with $5 to $25 million, so advisors need a due diligence process involving clients' CPAs and tax attorneys.
Adam Van Deusen recommends it
"Jeff has written a wonderful article digging very deep into the revenue ruling and the IRS notice, which we're going to talk about next. So if you're interested in learning more about that, please go to kitces.com/fat15 to check out that article."
▶ Play at 15:30What they recommend · 1 pick
Kitces.com article on IRS Revenue Ruling 2026-20 and Notice 2026-62 (Tax Risk Tolerance)
Finance & investing
"Jeff has written a wonderful article digging very deep into the revenue ruling and the IRS notice, which we're going to talk about next. So if you're interested in learning more..."
Also mentioned
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ETFs
· "ETFs have risen dramatically over the last few decades and it's largely because of that built-in real,..."
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Nerd's Eye View
· "I know we've had a previous article on the Nerd's Eye View blog about this, that risk tolerance is not just..."
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Roth Conversion
· "A Roth conversion is not a gray area of the law, something that's ill-defined, or something where there..."
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Kitces Premier Membership
· "As a reminder, Kitces Premier members can earn CE credit for taking quizzes on our technical content and..."
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