Treasury Takes Aim at Booming ETF Move That’s Slashing Tax Bills

The US Treasury Department is in early discussions about increasing scrutiny of one of the fastest-growing tax strategies in the $14 trillion ETF industry.

In a series of meetings with the Investment Company Institute and tax attorneys, Treasury officials discussed various forms of guidance it could issue about so-called 351 conversions, according to people briefed on the matter who asked not to be identified.

The tactic, one of a growing arsenal of strategies in Wall Street’s flourishing tax-optimization complex, helps investors rebalance a portfolio of appreciated assets without immediately triggering a liability for capital gains. An exchange-traded fund is seeded ...