Exchange-Traded Notes' Tax Perks Under Attack

Exchange-traded notes have been marketed as a tax-efficient way to invest in currencies and other hard-to-reach asset classes.

But their tax treatment has suddenly changed from a selling point to a potential drawback.

Earlier this month, the Internal Revenue Service ruled that ETNs -- or at least the ones tracking foreign currencies -- should be considered debt for federal tax purposes.

That means that even if you hold the shares for more than a year, you won't qualify for the lower long-term capital gains rate of 15%. Both capital gains and interest will be taxed as ordinary income, which is subject to rates up to 35%. ...