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On October 28th, 2026, Americans for Tax Reform submitted comments in response to IRS Notice 2026-62. The notice warned that certain investment strategies used to defer or reduce taxes may soon lose their tax benefits, and that the IRS may apply future guidance retroactively to transactions completed before it is issued.
The letter can be read here.
ATR opposes the retroactive application of any future rule, which would expose investors to back taxes on transactions they completed in good faith under the law as it stood:
Regardless of the propriety of the “novel investment fund strategies” described in the Notice, and the merits of any forthcoming guidance, one facet of the U.S. legal code is clear: the retroactive application of such guidance would subvert core principles of administrative law, undermine the intent of Congress, and seriously disrupt a marketplace holding trillions of dollars of investor savings.
A rule with retroactive force is an arbitrary tax hike. Every purported fix the notice contemplates would make investors pay more tax, sooner, on transactions that they would otherwise owe only when they sell.
We thus recommend that the Treasury Department and IRS:
- Apply any regulation, revenue ruling, or guidance arising from the Notice only to transactions entered into after publication of guidance stating, in detail, the operative rule
- Expressly state that no penalties will be asserted for any activities that occurred in the period before such guidance is published.
ATR urged the Treasury to reconsider potential retroactivity nature of the rule under administrative law norms that have been set by judicial precedent:
The Supreme Court has often emphasized, “[r]etroactivity is not favored in the law.” This principle applies in full force to agency regulations, which are promulgated by unelected officials exercising delegated authority. The reason is simple: retroactivity is fundamentally at odds with fair notice and due process—basic tenets enshrined not only in our Constitution but in statute.
The text of the Administrative Procedure Act (“APA”) confirms that rulemaking is exclusively a forward-looking exercise. When vesting agencies with the authority to issue rules, Congress took great care to define a “rule” as “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy.” It follows that agencies generally may not issue rules that change the law retroactively. Any contrary rule would make a mockery of the notice-and-comment process, the entire point of which is to give potentially regulated parties fair notice before regulations issue. After all, what purpose does a 30-day notice period serve if an agency may, at its own behest, impose rules that reach back in time?
The letter also notes that Congress previously considered and declined to remove the provision in the internal revenue code that exempts mutual funds and ETFs from recognizing capital gains on appreciated security redemptions. If enacted, it would have forced funds to recognize gains on every in-kind redemption. The letter states:
The House Ways and Means Committee’s tax title for the 2021 reconciliation bill left the provision untouched, and Congress never enacted a repeal. Congress never intended to undermine or diminish Section 852(b)(6), and as such the Treasury should not attempt to override Congress’ decision.
ATR also believes that such a move would lock investors into existing portfolios, since they could not rebalance without triggering capital gains tax. That would distort capital allocation and weigh on growth:
Investors that use these strategies are not liquidating their assets, but are instead staying invested, moving savings to more productive assets, and deferring a tax they will still owe when they eventually sell. Forcing recognition at that moment also reduces a certain amount of new capital that would otherwise remain invested in American companies, leaving less for new businesses and jobs to emerge and grow. A tax regime that punishes diversification and rewards inertia reduces the efficacy of American capital markets, harming economic growth in the long run.
The letter concludes by asking Treasury to not subject investors and investment funds to a surprise tax hike via future rulemaking.
The letter can be read here.