BOXX After IRS Notice 2026-62: What Changed and Who Should Still Buy

Written October 4, 2026, before the comment deadline. Updated October 5 with Daniel Hemel’s analysis of the §1258 routes.

The short version

On September 28, 2026 the IRS published Notice 2026-62, which describes the box-spread ETF tax mechanism in a section titled “Box spread funds” and lists it among strategies that may produce results “inconsistent with the purpose and proper application” of the tax rules. It names no fund.
Nothing about how BOXX is taxed has changed yet. There is no regulation and no listed-transaction designation.
What did change: Treasury says any guidance could apply retroactively, and the IRS may challenge the strategy on examination under existing law. For shareholders, the likeliest attack runs through §1258, which can turn the gain on a sale into ordinary income.
For new taxable cash I now default to Treasury bills or a bill fund. BOXX keeps a case for top-bracket investors with little or no state tax who will hold for years and can live with a retroactive tail. I am holding my existing position and adding nothing.

BOXX, the Alpha Architect 1-3 Month Box ETF, has grown to $14.5 billion by earning roughly what Treasury bills earn while distributing almost nothing, so the return shows up as a capital gain when you sell.¹ I covered how it works, and the long academic argument over whether the tax treatment holds, in the BOXX explainer.

What Notice 2026-62 says about box-spread funds

The notice describes ETFs that use four options to produce “a return similar to a short-term interest rate” and then use the in-kind redemption rule in §852(b)(6) to avoid recognizing that return inside the fund. The mechanism, in the IRS’s words: “(i) the ETF issues a creation unit to an authorized participant in exchange for cash or property, and (ii) the ETF distributes the options that have unrealized gain in redemption of the creation unit in a transaction intended to qualify under § 852(b)(6). As a result, the ETF purportedly avoids recognition of any income or gain from the box spread, and investors purportedly recognize no current income although they economically benefit from a return consistent with a short-term interest rate.”²

A footnote explains why these funds use options on an ETF such as SPY rather than on the S&P 500 index: index options are §1256 contracts, and distributing one “would be a termination or transfer giving rise to recognized gain.” BOXX made that move over its 2024 and 2025 fiscal years, and its October holdings are almost entirely a long SPY box.¹⁶ The notice also describes a variant that pairs the box with a straddle, distributes the winning leg and deducts the losing one.

The section ends with a limit on its own reach: “This notice does not address other transactions involving box spreads, and this notice is not intended to express a view regarding such transactions.” Borrowing with a box spread, or holding boxes directly, is outside it.

The notice did not arrive cold. At a Wall Street Tax Association meeting on July 21, 2026, IRS and Treasury officials listed “box spreads distributed in kind” among transactions they called “too good to be true.”⁹ Alpha Architect’s CEO, Wes Gray, told Bloomberg that the notice “seems to just be a formal version of their conversation.”⁸

Three tax questions that share a headline

Coverage of the September guidance has mixed three different issues. Only the second is new for BOXX.

Section 351 conversions. Revenue Ruling 2026-20, issued the same day, deals with investors who contribute appreciated stock to a new ETF under a plan in which the ETF promptly hands that stock to an authorized participant. Applying substance-over-form and step-transaction doctrine, the IRS treats the investor as having made a taxable exchange. The ruling does not mention box spreads.³ It matters to BOXX only as a sign of method: Treasury is willing to look through a sequence of ETF creations and redemptions to its result.
Section 852(b)(6) and box-spread funds. This is the section quoted above, and it is aimed at the mechanism BOXX uses.
Section 1258 conversion transactions. In 2024 Steven Rosenthal argued that a BOXX shareholder is in a conversion transaction, so §1258 can turn the gain on selling shares into ordinary income.¹⁰ Daniel Hemel aimed at the fund instead, through the straddle rules that applied to its single-stock options.¹¹ Notice 2026-62 does not cite §1258, but its warning covers challenges under the Code, and §1258 is the provision most likely to reach shareholders. The next sections explain how.

What has not changed

No regulation has been proposed and nothing has been finalized.
Box-spread funds have not been designated listed transactions or transactions of interest, which are the categories that trigger special disclosure requirements. The notice says only that future guidance may include “the potential identification of a transaction as a transaction of interest or a listed transaction.”
The IRS has not said BOXX shareholders owe anything. A shareholder who sold at a gain last year reported it under current law.
The economics are unchanged. On October 2 BOXX showed an average yield to option expiration of 4.39%, a figure that excludes its 0.1949% net expense ratio, so roughly 4.20% after fees. The 3-month Treasury constant-maturity yield was 4.17% on October 1.¹⁷ The two are measured on different bases, but they put BOXX within a few basis points of bills before tax. The case for BOXX has always been the after-tax case.

What has changed

Three sentences in the notice’s opening section move this from an academic dispute to a regulatory one.²

On timing: “Any such guidance could apply prospectively only or retroactively to transactions that already have taken place at the time the guidance is issued.” The footnote cites §7805(b)(3), which lets Treasury make a regulation retroactive “to prevent abuse.”
On enforcement: “the IRS may challenge an abusive investment fund strategy upon examination as inconsistent with existing law, including the Internal Revenue Code (Code), Income Tax Regulations, and applicable judicial doctrines.”
On scope: guidance “will target specific abusive transactions” and “will respect market expectations with respect to conventional, long-established tax planning that is consistent with the intent of Congress.”

Saying retroactivity is possible differs from announcing it, and the notice gives no sign of intending to reach back. But an investor buying BOXX today does so after a published warning, which weakens any later argument that the change was a surprise.

BOXX’s prospectus already describes what an adverse result would look like for shareholders. If the IRS succeeded, the fund might pay a deficiency dividend “to the then current shareholders of the Fund,” meaning whoever holds when the challenge lands. It also warns that “such underreported income or gains could result in a shareholder owing increased taxes, penalties and interest to the IRS.”⁵

Where the tax experts split

The people who know this area best still disagree about whether Treasury can win under current law.

Daniel Hemel concluded in 2024 that the IRS would likely succeed at the fund level.¹¹ After the notice, he wrote that now BOXX uses options on an S&P 500 ETF instead of §1256 contracts, “it’s not obvious how the IRS can attack this at the fund level.”¹³ On October 5 he set out the routes that remain, both aimed at shareholders through §1258, which the next section covers.¹⁷
The Tax Law Center at NYU wrote on September 30 that “there is significant risk that the box spread ETF strategy does not work under current law” and that “there should be a clear path to shutting this strategy down with targeted Treasury guidance.”¹²
Practitioner summaries from KPMG and Mayer Brown describe the box-spread section and the possibility of retroactive guidance without predicting an outcome.¹⁴¹⁵

The statute itself is short. Section 852(b)(6) says the corporate gain-recognition rule “shall not apply” to a fund distribution “in redemption of its stock upon the demand of the shareholder.”⁴ Ordinary ETFs rely on that sentence every time they redeem in kind, which is why Treasury has to explain what makes the box-spread use different instead of rewriting the rule. I have not seen a defensible way to put a probability on the result, and I have not tried to.

Two routes to shareholders: enforcement and regulation

Section 1258 applies when substantially all of the expected return is the time value of money, a test Hemel says BOXX “clearly satisfies” and Mayer Brown’s Mark Leeds concedes, and the transaction falls into one of four categories. Two of them matter here.⁴ Hemel’s October 5 thread lays out how the IRS could use each.¹⁷

Enforcement under §1258(c)(2)(C). This category covers a transaction “marketed or sold as producing capital gains” from a time-value return. If BOXX qualifies, the IRS could treat gains on selling the ETF as ordinary income under current law, with no new rule. Hemel points to BOXX’s early filings. The December 2022 summary prospectus said: “Based on the advice of its accountants, the Fund expects that distributions related to the Fund’s SPX positions if any, will be characterized by the Fund as capital gains with these preferential terms.”¹⁸ That sentence appears in summary prospectuses through January 2025. The February 2026 summary prospectus drops it, although the full statutory prospectus still carries it.⁵ Hemel says he has found no precedent on whether earlier statements still taint a fund after its marketing changes. Leeds read the same materials in 2024 and concluded the marketing test was not met; the explainer sets out both readings.

Regulation under §1258(c)(2)(D). This category covers “any other transaction specified in regulations prescribed by the Secretary.” Treasury could use it to classify gains on every box-spread ETF as ordinary at the shareholder level, whatever a fund’s marketing history. Hemel notes it would have to go through notice and comment first.

Timing. Hemel expects a retroactive regulation to be harder to defend in court, so Treasury may make it prospective only. A prospective rule still applies to every sale after it takes effect, including gains that built up before. Under §7805(b)(1), a regulation can generally apply to tax periods ending on or after the earliest of three dates: when it is filed with the Federal Register, when a related proposed regulation was filed, or when Treasury issued a notice “substantially describing the expected contents” of the regulation. Whether Notice 2026-62, which describes the strategy but no rule, counts as that kind of notice is an open question. Separately, §7805(b)(3) allows a retroactive date “to prevent abuse.”⁴

The possible outcomes

The figures in the last two columns are for one modeled investor: a 4.2% gross return for both funds, five years held, BOXX at its 0.1949% net fee against SGOV at 0.09%, and a 37% ordinary and 20% long-term rate plus the 3.8% net investment income tax. Each figure is the annualized difference against SGOV.

Outcome	What happens	No state tax	California, 13.3%
No action, or a narrow rule	Current treatment continues	+67bp	+18bp
Shareholder-level ordinary income (§1258, by examination or regulation)	Still deferred to sale, but the gain is ordinary	+1bp	−49bp
Fund-level recognition, prospective	Fund distributes its income each year as ordinary dividends	−6bp	−57bp
Retroactive change	Earlier years corrected, possibly with interest and penalties	Worse than the row above by the interest, any penalties and the cost of amended returns
Transaction of interest or listed transaction	Disclosure filings for participants, possibly before any change in treatment	Adds annual disclosure filings, a burden most cash holders would not accept

For this investor in a state without an income tax, the upside and the prospective downside are lopsided: about 67 basis points a year if the treatment holds, and a few basis points behind bills if it is replaced going forward. Deferral and the fee gap roughly cancel. The same investor in California gives up most of the upside to state tax already and loses around 50 basis points a year if the treatment changes, because a bill fund’s interest is almost entirely exempt from state tax and BOXX’s gain is fully taxable.¹⁶

The rows the calculator cannot price are the last two, and they are where the notice moved things. Run your own inputs below.

Treasury bills, a savings account and BOXX side by side

	Treasury bills or a bill fund	High-yield savings	BOXX
Backing	U.S. Treasury obligations	FDIC insurance to $250,000 per depositor, per bank, per category	Options cleared by the OCC; not insured or guaranteed
Federal tax	Ordinary, each year	Ordinary, each year	Capital gain at sale under current treatment
State tax	Exempt (SGOV: 95.14% exempt for 2025)	Taxable	Taxable
Access	Sell any trading day; T+1 settlement	Transfer any day	Sell any trading day; a sale inside a year is short-term gain
Tax-law uncertainty	None to speak of	None to speak of	Named in a Treasury notice

A savings account belongs in this comparison for money you might need this month: it settles instantly and the yield gap to bills is a rounding error on a small balance. For larger taxable balances in a state with an income tax, bills usually beat it after tax because of the state exemption. The cash guide works through the layers.

New money and existing money are different decisions

New money. Before September 28 the main open question was whether a court would accept the academic critique. Now Treasury has described the mechanism and said it may act, possibly retroactively. The bar for putting fresh cash into BOXX should be higher than it was in August. My default for taxable cash is Treasury bills or a bill fund.

Existing positions. Selling realizes your gain under today’s rules, the most favorable treatment currently available. A sale does nothing against a retroactive rule, which would reach the gain anyway. It does protect against a prospective shareholder-level rule, the form Hemel thinks Treasury may choose because it is easier to defend in court, since that rule would tax the whole embedded gain as ordinary income at any later sale. The larger your accumulated long-term gain, the more waiting risks. If you hold BOXX in a taxable account, the gain is long-term, and you have no need for the money, the notice alone does not force a decision, but proposed regulations under §1258 should. If you have short-term gains, your state taxes capital gains heavily, or the retroactive tail would cost you sleep, trimming is reasonable. In an IRA there was never a tax reason to own it.

Who still has a case for new purchases

All of these should be true:

The money is in a taxable account.
Your ordinary rate sits well above your long-term rate, typically the 35% or 37% bracket against 20%, or 32% against 15%.
You pay little or no state tax on capital gains, as in Texas, Florida or Washington below its capital gains deduction.
You expect to hold for more than a year, ideally several.
The money is not your emergency reserve.
You accept that a retroactive change could mean amended returns, interest and possibly penalties, and you would size the position so that outcome is an annoyance.

Large unused capital loss carryforwards strengthen the case, as the explainer covers. If any of the conditions above fails, use bills.

Newer box-spread ETFs, including GraniteShares’ LBOX at a 0.1349% net expense ratio and Tidal’s XCSH, carry the same exposure to the notice and to any §1258 regulation, since the structure is what both would describe. Their exposure to enforcement may differ. Hemel suggests that funds without a history of capital-gain statements, naming Wayfinder’s CMBO and Roundhill’s XBOX, are less exposed under the marketing test than BOXX.¹⁷ CMBO’s prospectus goes the other way from BOXX’s 2022 language and warns that “gains on dispositions of Shares may be recharacterized as ordinary income.”¹⁹²⁰ A lower fee does not change the tax question.

What I am doing

I hold about $20,000 of BOXX, bought before the notice, alongside a considerably larger position in SGOV and Treasury bills. I am keeping the BOXX position and adding nothing to it. New cash goes to bills.

What to watch

October 28, 2026: the comment deadline. Comments go to docket IRS-2026-1255 on regulations.gov and will be published. The notice specifically asks whether similar-looking transactions have “different facts or different economics,” which invites the sponsors to argue their funds differ from the description.²
Proposed §1258 regulations: the trigger for existing holders to reconsider, since even a prospective rule would reach gains already accrued.
Fund filings: any change to BOXX’s prospectus tax disclosure or to how it rolls and redeems positions.
Proposed regulations or a transaction-of-interest notice: the first will show whether any rule reaches back, and the second would add reporting before any rate change.

Key takeaways

Notice 2026-62 describes the box-spread ETF mechanism and says guidance could be retroactive. It changes no one’s taxes yet and names no fund.
The notice questions the fund’s use of §852(b)(6). The likeliest attack on shareholders runs through §1258: by examination if a fund was marketed as producing capital gains, as BOXX’s 2022 filings arguably were, or by a regulation that would reach every box-spread fund.
Before tax, BOXX and bills earn about the same. The case for BOXX is entirely an after-tax one.
For one modeled top-bracket investor with no state tax, BOXX is about 67 basis points a year ahead of SGOV if the treatment holds and a few basis points behind if it is replaced going forward. In California the same investor loses about 50 basis points a year under a change.
For new taxable cash, start with Treasury bills. Existing BOXX positions do not need to be sold because of the notice alone, but proposed §1258 regulations would be a reason to revisit.

How Summitward helps

Cash Yield Tracker

Track every cash holding in one place, including box-spread positions, alongside current Treasury and cash-fund yields.

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Frequently asked questions

Did the IRS ban BOXX?

No. Notice 2026-62 requests comments and describes guidance Treasury is considering. It changes no rule, designates nothing, and does not name BOXX or any other fund.

Should I sell BOXX now?

Not because of the notice alone. Selling locks in today’s treatment on your gain, and nothing has changed the treatment yet. The better reasons to sell are personal: a high state tax on gains, a likely need for the money within a year, or a position large enough that a retroactive adjustment would hurt. Those were reasons before the notice too. The one new trigger to watch is proposed regulations under §1258: a rule that applies only to later sales would still tax the gain you have already built up as ordinary income.

Could I owe penalties on gains I already reported?

BOXX’s own prospectus says an adverse ruling could leave shareholders “owing increased taxes, penalties and interest.” The notice says guidance could be retroactive but does not say it will be. Whether penalties would apply to shareholders who reported what the fund told them is a question the notice does not reach, and it is one for a tax adviser if it comes to that.

Does this affect SGOV or other ordinary ETFs?

No. SGOV holds Treasury bills and distributes their interest, so it relies on none of the described strategies. The notice says it does not address ordinary in-kind redemptions and that guidance will respect conventional, long-established tax planning.

What about LBOX, XCSH and other box-spread ETFs?

The notice describes a structure, not a sponsor, so any ETF earning a box-spread return through in-kind redemptions of non-§1256 options faces the same regulatory risk. Enforcement risk under the §1258 marketing test depends on what each fund said about capital gains, and BOXX’s 2022 filings put it in the weakest position on that test. Differences in how a particular fund rolls and redeems could also matter legally, and the comment process is where sponsors will argue that.

Related guides

BOXX ETF Explained: how box spreads work, the distribution record, the state-tax map and the §1258 debate in full.
Where to Park Your Cash: the layers of a high earner’s cash, from checking to bills to munis.
SGOV vs. VBIL: choosing between the two largest bill ETFs after state tax.
Box Spread Loans: the borrowing side of the same instrument, which the notice explicitly leaves alone.
There Are Only Four Things You Can Do With a Capital Gain: where §351 ETF conversions fit, and what Rev. Rul. 2026-20 did to them.

Sources

Alpha Architect, BOXX fund page, read October 4, 2026: net assets $14,528.80 million as of October 2, 2026; 0.2449% gross and 0.1949% net expense ratio; average yield to option expiration 4.39% with 77 average days to expiration, a forward figure that excludes fees; holdings dated October 5, 2026 consisting of a long SPY box expiring December 18, 2026 and a small short QQQ box; inception December 27, 2022. funds.alphaarchitect.com
Internal Revenue Service, Notice 2026-62, “Guidance and Other Actions Being Considered Regarding Certain Potentially Abusive Investment Fund Strategies Involving Financial Products,” section 1 (purpose, possible retroactivity, examination under existing law), section 2.04 (box spread funds) and footnote 6, and section 4 (comments due October 28, 2026; docket IRS-2026-1255). irs.gov (PDF)
Internal Revenue Service, Revenue Ruling 2026-20, on transfers of appreciated securities to a newly formed ETF followed by a prearranged redemption to an authorized participant. irs.gov (PDF)
26 U.S.C. §852(b)(6); 26 U.S.C. §1258(c)(2); 26 U.S.C. §7805(b). §852, §1258, §7805 (Cornell LII)
EA Series Trust, Alpha Architect 1-3 Month Box ETF summary prospectus, February 1, 2026: §852(b)(6), conversion-transaction, deficiency-dividend and underreporting disclosures. SEC EDGAR
EA Series Trust, BOXX annual and semi-annual shareholder reports for September 30, 2024, March 31, 2025 and September 30, 2025, showing S&P 500 index options replaced by SPY options over that period. SEC EDGAR
Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, 3-month Treasury constant maturity, 4.17% for October 1, 2026. federalreserve.gov
Justina Lee and Denitsa Tsekova, Bloomberg, September 28, 2026, on the notice and its effect on ETFs, including the Wes Gray quotation. bloomberg.com
K&L Gates, “IRS and Treasury Discuss Current Issues With ETFs and Tax-Aware Strategies,” July 22, 2026, on the July 21 Wall Street Tax Association meeting. klgates.com
Steven Rosenthal, “Tax Gimmick in a BOXX,” Tax Policy Center TaxVox, March 2024. taxpolicycenter.org
Daniel J. Hemel, “The Tax Trap Inside the BOXX,” 182 Tax Notes Federal 1973 (March 11, 2024), quoted from the published abstract. Tax Notes
Miles Johnson, Michael Kaercher, Thalia T. Spinrad and Sophia Yan, “A New Wave of ETFs & Other Tax-Focused Investment Products,” Tax Law Center at NYU Law, September 30, 2026. taxlawcenter.org
Optimized Portfolio, BOXX review page, updated October 3, 2026, which reproduces Daniel Hemel’s September 28, 2026 post on X. Cited as commentary. optimizedportfolio.com
KPMG, TaxNewsFlash summary of Rev. Rul. 2026-20 and Notice 2026-62, September 28, 2026. kpmg.com
Mayer Brown, client alert on Rev. Rul. 2026-20 and Notice 2026-62, October 2, 2026. mayerbrown.com
31 U.S.C. §3124(a) and IRS Publication 550 on the state and local exemption for Treasury interest; BlackRock, 2025 U.S. Government Source Income Information (SGOV 95.14%). Modeled figures come from the calculator on this page, whose arithmetic is in web/src/lib/boxx-after-tax.ts. irs.gov
Daniel Hemel, thread on X, October 5, 2026: enforcement under §1258(c)(2)(C), regulation under §1258(c)(2)(D), the end of the §1092 fund-level argument after BOXX moved to SPY options, prospective versus retroactive regulations, and CMBO and XBOX. x.com/DanielJHemel
EA Series Trust, Alpha Architect 1-3 Month Box ETF summary prospectus, filed December 19, 2022 (Form 497K). EDGAR full-text search shows the same SPX capital-gains sentence in summary prospectuses through January 31, 2025, and in the statutory prospectus filed January 28, 2026. SEC EDGAR
The RBB Fund Trust, prospectus for Wayfinder Dynamic U.S. Interest Rate ETF (CMBO) and other Wayfinder funds, October 31, 2025, tax information section. SEC EDGAR
Roundhill ETF Trust, Roundhill Ultra Short Duration No Dividend Target ETF (XBOX) summary prospectus, March 16, 2026, which describes a box spread strategy and discloses §1258 risk. SEC EDGAR

Author disclosure

I hold about $20,000 of BOXX and a larger position in SGOV and Treasury bills, and I have no relationship with Alpha Architect or any other sponsor named here. I am not a tax lawyer. Nothing here is tax advice, and how a future rule would apply to you depends on facts this article cannot see.