No question: exchange traded funds (ETFs) are leaps and bounds more tax-efficient than mutual funds. That doesn’t mean, however, that they’re without any tax implications that some investors may find undesirable.
Millions of investors around the country just finished wading through and reporting their 2009 taxes. Some of those investors may have bought commodity or currency funds for the first time and, as a result, may have dealt with a few surprises. 
Jason Zweig for The Wall Street Journal talks about these tax implications and what they can mean for you as an investor:
- Analyst Mariana Bush of Wells Fargo Advisors has estimated that commodity ETFs can be taxed in six different ways and currency ETFs in eight.
- There’s a need for more education when it comes to funds in alternative asset classes, such as commodities and currencies. More investors are using them without fully understanding what it may mean on April 15. 
- Commodity and currency ETFs are often structured as trusts or limited partnerships that pass income and gains through to their investors.
- Income or gains in such funds may come from foreign currencies or physical commodities—but also from money-market instruments, forward contracts, swap agreements, futures contracts or other derivatives.
- United States Oil Fund (NYSEArca: ), for instance, trades oil futures. The Internal Revenue Service requires open positions in futures contracts to be “marked to market” at year end. That means investors can owe capital-gains taxes on holdings the fund hasn’t unloaded yet, regardless if you still own it.
These taxes aren’t necessarily a bad thing. It may just be the trade-off to getting access to markets that were previously unavailable to investors. To avoid surprises or tax events you find undesirable, be armed with the facts and information you need before proceeding.