IRS Notice 2026-62 Targets 'Tax Alpha' Strategies Including AQR's Delphi Plus; Potential Retroactive Guidance Looms

Treasury and the IRS issued Notice 2026-62 and Revenue Ruling 2026-20 on September 28, 2026, signaling scrutiny of investment strategies designed to generate ordinary losses that offset high-taxed wage and bonus income, rather than solely capital gains. The guidance highlights concerns over transactions in tax-aware funds that create capital gain/ordinary loss mismatches, same-day foreign currency forwards under Section 988, selective terminations of notional principal contracts, identified straddles, box spread ETFs, and certain Section 852(b)(6) ETF redemptions.

AQR Capital Management's AQR TA Delphi Plus Fund, with over $6.6 billion in assets at mid-year and cumulative sales exceeding $6.8 billion per SEC Form D filings, exemplifies the targeted approach. The fund has produced ordinary losses approximating 28% of invested capital in 2025, allowing high-income investors to potentially deduct against ordinary income while maintaining portfolio positions. Bloomberg first detailed the IRS warning, noting AQR's prior disclosures about possible regulatory changes.

Broader industry context reveals over $1 trillion in tax-efficiency strategies, from direct indexing to structured products. Experts like NYU Law professor Daniel Hemel describe ordinary-income shielding as potentially 'carried interest on steroids,' appealing to a vast taxpayer base beyond those with embedded gains. Short seller Nathan Koppikar of Orso Partners flagged the strategy as the 'holy grail' for tax alpha.

The notice concedes that plain-vanilla long-short equity strategies align with established techniques but flags primarily tax-motivated activity. Any final guidance could apply retroactively, prompting comments due by October 28. Related rulings address 351 ETF conversions and other maneuvers, reflecting Treasury's push against transactions viewed as disconnected from genuine economic returns.

SEC filings confirm the fund's growth and structure as a Delaware LLC offering to qualified purchasers. Accounting and advisory firms like RSM and KPMG have issued analyses framing the guidance as part of wider scrutiny of tax planning in investment funds.