Tax strategy has always been an important part of wealth creation. For a W-2 executive with substantial equity compensation, a business owner selling a company, an accredited investor with significant capital gains, or a high-net-worth family managing a large portfolio, taxes can materially affect how much wealth is ultimately created — and retained.

That is why sophisticated investors have long looked for ways to make investment decisions and tax planning work together. But there is an important distinction between using a tax rule that is embedded in the economics of an investment and building an investment strategy primarily around a particular tax transaction.

That distinction is becoming increasingly relevant following the IRS's recently issued Notice 2026-62. The notice focuses on certain investment-fund strategies that, according to the IRS, may use provisions of the tax code in ways inconsistent with their intended purpose. One area specifically discussed is a strategy combining Section 351 and Section 852(b)(6) involving ETFs. The IRS has also issued Revenue Ruling 2026-20 addressing a transaction described in the notice.

The notice does not eliminate Section 351 or suggest that conventional ETF investing is generally problematic. In fact, the IRS specifically distinguishes the transactions it is examining from conventional, long-established tax planning, and says that any future guidance is intended to target specific abusive transactions while respecting conventional tax planning consistent with congressional intent.

For investors, however, the development raises a broader question:

That is where private markets become particularly interesting.

Tax strategy doesn't have to begin with a tax transaction

There is a tendency to think about tax strategy as something that happens after an investment decision. Invest first, then figure out how to minimize the tax. But many private-market investments work differently — the tax characteristics can be part of the investment thesis from the beginning.

Consider real estate. A real estate investment may generate rental income and appreciation while also creating tax deductions associated with depreciation. Depending on the investor's circumstances and the specific structure, additional tax planning may involve cost segregation, passive-activity rules and other provisions.

The investor is not creating a tax benefit by moving securities through an ETF. The investor is owning an underlying asset — real estate — and the tax code provides rules governing how that asset is taxed. That is a fundamentally different type of tax strategy.

Private markets offer several established tax-aware investment structures

Private-market investing is not a single tax strategy. It is an investment universe containing different asset classes, structures and tax treatments. Some examples include:

1. Real estate and depreciation

Real estate has long been an important component of tax-aware investing. The tax code provides depreciation deductions for qualifying property, even though depreciation is a non-cash expense. Depending on the investor's circumstances, ownership structure and participation in the activity, those deductions may have meaningful tax consequences.

However, investors should be careful about assuming that real-estate losses automatically offset W-2 income. Passive-activity rules can limit the use of losses, and special rules apply to real-estate professionals and material participation.

This is why the question is not simply, "Does this investment generate depreciation?" It is, "How does the depreciation interact with my specific tax situation?" That is a conversation for the investor's tax adviser.

2. Section 1031 and real estate

Another long-established mechanism is the Section 1031 like-kind exchange. The basic concept is straightforward: a taxpayer may potentially defer recognition of gain when qualifying investment or business real property is exchanged for other qualifying real property, subject to the requirements of the Code and regulations.

The IRS describes §1031 as a longstanding provision and notes that, following the Tax Cuts and Jobs Act, it applies to qualifying real property rather than personal or intangible property. This is very different from constructing a transaction around a sequence of ETF contributions and redemptions.

The tax treatment is connected to the underlying asset class — real property — and the statutory requirements governing its disposition and replacement. For real-estate investors, that can make tax planning part of a longer-term investment strategy rather than a standalone financial transaction.

3. Qualified Small Business Stock

Private-market investing can also intersect with another important provision: Section 1202, the Qualified Small Business Stock (QSBS) exclusion. For qualifying C-corporation stock meeting the statutory requirements, §1202 can allow an investor to exclude a portion — or, for qualifying stock acquired after September 27, 2010, potentially up to 100% — of eligible gain after satisfying the applicable holding-period and other requirements.

That creates an interesting connection between private company investing, long-term ownership and tax planning. For an accredited investor allocating capital to qualifying early-stage or growth companies, the potential tax treatment can be part of the overall investment analysis.

But it should never be reduced to "invest in startups because they're tax-free." QSBS has detailed eligibility requirements, including requirements related to the corporation, original issuance, qualified business activity, asset levels and holding period. The investment thesis must stand on its own; the tax treatment can be an additional consideration.

4. Opportunity Zones

Another example is the Qualified Opportunity Zone framework. Congress created Opportunity Zones as an economic-development incentive that allows qualifying investors to receive specified tax benefits when eligible gains are invested through qualifying Opportunity Funds and the statutory requirements are met.

The IRS describes benefits including potential deferral of eligible gains and, subject to the applicable rules, special treatment of appreciation in a qualifying Opportunity Fund investment held for the required period. Again, the tax treatment is connected to an underlying investment in qualifying businesses or property within the statutory framework — the investor is not simply executing a financial transaction whose primary purpose is to manufacture a tax result.

5. Energy and other specialized private investments

Certain private-market investments can also have specialized tax characteristics. Depending on the investment, structure and applicable law, areas such as energy, infrastructure and operating businesses may involve specific deductions, credits or other tax considerations. These opportunities require particularly careful analysis because tax benefits can vary significantly based on:

• The asset
• The legal structure
• Investor participation
• Financing
• Holding period
• Taxable income
• Applicable limitations
• Changes in legislation

The point is not that every private investment has a tax advantage. The point is that tax characteristics can originate from the economics and statutory treatment of the underlying investment itself.

For W-2 investors, the conversation is especially important

A common misconception is that private-market tax strategies are only for entrepreneurs or people selling businesses. That is not necessarily the case. Consider a high-income W-2 executive, who may have:

• Salary income, RSUs and stock options
• Concentrated company stock and capital gains
• Retirement accounts
• Real estate and other private investments

Their challenge is often that most of their wealth and income comes from a relatively small number of sources. Private-market investments may provide opportunities to build exposure to different assets while potentially incorporating tax characteristics into the overall investment plan.

But the rules around passive losses, material participation and other limitations are critical. A W-2 investor should not assume that an investment producing a tax deduction automatically produces an equivalent reduction in W-2 taxable income — the IRS rules can significantly limit the use of passive losses.

Business owners have a different opportunity set

Business owners often have another advantage: they understand operating businesses. A business owner who has spent years building a company may naturally understand the value-creation dynamics of another operating business better than the average investor.

Private-market investing can allow them to deploy capital into other operating companies, private equity, venture investments, real estate, private credit, specialty finance, infrastructure and other entrepreneurial opportunities. The tax considerations can then be evaluated alongside the investment thesis:

1. What is the expected return?
2. How long will the capital be invested?
3. What is the downside?
4. What is the liquidity?
5. What tax treatment applies?
6. What happens when the investment is sold?

That is a much broader framework than simply searching for the next tax shelter.

High-net-worth investors can think in terms of a "tax-aware portfolio"

For high-net-worth investors, tax strategy does not have to be one transaction. It can be a portfolio architecture. A portfolio might contain:

The objective is not to maximize tax deductions. The objective is to maximize after-tax wealth creation consistent with the investor's risk, liquidity and investment objectives.

The important difference from the strategies highlighted by Notice 2026-62

This is where the current IRS discussion becomes particularly relevant. Notice 2026-62 describes certain transactions where multiple provisions are combined as part of a planned sequence to achieve a tax result that the IRS believes those provisions were not intended to produce.

The notice specifically discusses a strategy in which appreciated securities are transferred to a newly formed ETF under a purported §351 transaction, followed shortly afterward by transactions involving ETF redemptions. The IRS states that the combined use of §351 and §852(b)(6) is being used in a manner that it believes neither provision was designed to produce.

That does not mean every tax strategy is vulnerable. It does suggest a useful distinction:

Private markets can provide examples of the second approach. Real estate has established tax rules. Qualifying small-business stock has established statutory requirements. Like-kind exchanges have established statutory and regulatory requirements. Opportunity Zones have an established statutory framework.

These provisions can change over time — Congress can always amend the tax code — but they are not dependent on inventing a new ETF transaction to create the desired tax outcome.

"Proven" doesn't mean "guaranteed"

Investors should be skeptical of anyone saying that a tax strategy has "zero IRS risk." No responsible adviser can promise that. Congress can change tax laws. The IRS can issue guidance. Courts can interpret provisions. An investor's individual facts can change the outcome. Even a long-established provision can be modified in the future.

The more defensible observation is this: many private-market tax mechanisms have been part of the U.S. tax system for years or decades and are explicitly incorporated into the statutory framework governing the underlying investments. That is different from saying they can never change — and that distinction matters.

The real opportunity: invest first, optimize second

Perhaps the most important mindset shift for investors is this: don't start with the tax benefit. Start with the investment.

This approach is fundamentally different from starting with, "What transaction can I execute to avoid recognizing this gain?"

Where Kubera Capital fits

Kubera Capital is a private-market investment platform focused on opportunities across real estate, private equity, private credit and venture investments. Our role is to identify and evaluate private-market opportunities and make those opportunities available to eligible investors where appropriate.

We do not position private-market investing as a guaranteed tax solution. Instead, we believe investors should evaluate the investment and the tax characteristics together:

The investment comes first. The tax analysis then becomes part of the complete underwriting.

A different way to think about tax planning

For decades, sophisticated investors have used the tax code as one component of their investment strategy. The opportunity today is not necessarily to find the newest tax structure. It may be to return to a simpler principle:

Notice 2026-62 is a timely reminder of why that distinction matters. The IRS is scrutinizing certain novel investment-fund strategies. At the same time, the tax code continues to provide established frameworks governing investments in areas such as real estate, qualifying small businesses and other assets.

For investors, that creates an opportunity to think beyond one transaction. Not, "How do I replicate my portfolio without paying tax?" But, "How can I build long-term wealth using investments whose economics, structure and tax characteristics work together?" That is where private markets can become a meaningful part of the conversation.

This article is for informational purposes only and does not constitute investment, legal, or tax advice. Past performance does not guarantee future results. All investments involve risk, including possible loss of principal.