Exchange Traded Note (ETN) Tax Treatment Threatened

As we have discussed previously, we generally implement clients’ allocations to commodities using an exchange traded note (“ETN”) issued by Goldman Sachs.  The return of the note is linked to an enhanced commodity index and currently enjoys favorable tax treatment relative to commodity mutual funds.  As we expected, this tax treatment has come under some scrutiny by the IRS and Congress and may change as the result of IRS rulings or legislation.

If there were a change in the tax treatment of ETNs generally, it is unclear whether that would affect our existing positions.  They might be grandfathered.  However, even without that, since tax efficiency is only one benefit of the note, we do not expect to switch to another vehicle unless there is a material adverse change.