The break is designed to help take the sting out of having to comply with federal ethics laws that can require appointees to sell off assets when they would pose a conflict of interest.

In order to qualify, they have to put the proceeds from those sales into government-approved investment vehicles like index funds, and that may not appeal to everyone.

Last week, billionaire investor John Paulson bowed out of the running to head up Treasury, pointing to his financial portfolio. It also appears that Elon Musk, the world’s wealthiest person, who looked to be joining the administration, won’t qualify for the break after Trump named him to an outside commission on budget cuts.

But the tax deferral arrangement can be a boon to those who were looking to diversify their holdings anyway. And it can be particularly valuable now, when the market is way up, by allowing people to cheaply get out of high-flying assets before investors’ mood darkens.

“Where it becomes very useful is when people are heavily invested in one company — the company they started, or something like that,” said Robert Rizzi, a tax lawyer at Holland & Knight who for decades has advised people nominated for executive branch jobs, including some now being vetted for the next Trump administration.

“Some people think it’s quite useful to diversify their holdings without paying tax.”

A long list of people have used the provision over the years, including many in the Biden administration. Treasury Secretary Janet Yellen was approved for the deferral, government records show, as was Energy Secretary Jennifer Granholm. In 2021, Yellen was told to sell stocks in Conoco Phillips, Pfizer, Raytheon and Dow, among other companies.

The maneuver is bound to get a lot more scrutiny in the coming months as a long list of wealthy people look to join the Trump administration, many of whom would have to be confirmed to the positions by the Senate. Lawmakers are sure to closely examine their financial holdings.

Among those also in the mix: Howard Lutnick, CEO of financial services firm Cantor Fitzgerald, and professional wrestling magnate Linda McMahon, who are co-chairing Trump’s transition team; and Jay Clayton, a former Wall Street lawyer named last week as U.S. attorney for the Southern District of New York. Experts say it’s unclear whether Trump or Vice President-elect JD Vance could benefit from the provision.

Federal employees can be forced to divest assets when they pose a conflict of interest to their jobs. The idea is to avoid, say, a Treasury Secretary having a financial interest in an issue before the department.

But requiring people to sell can mean they will face potentially stiff tax bills the following April. Amid concerns that would dissuade many from working in the government, Congress added a provision to the tax code in 1989 allowing people to defer capital gains so long as they put the proceeds in Treasuries or mutual funds.

The way it works: Say someone bought a stock at $10, which then appreciated to $100. When they sell, they’d normally be subject to tax on the $90 gain.

But Section 1043 of the code allows them to sell the stock for $100, put the money in an index fund and not pay anything until they sell the index fund. When they do sell, they’d owe tax on the original $90 gain plus any subsequent gain from the index fund. The tax on capital gains maxes out at almost 24 percent.

If they never sell, then they never owe any tax, though they could also do that even if they didn’t take advantage of the provision.

It’s not an unalloyed benefit, and it comes with some uncertainties.

Nominees can’t take advantage of it until they are in the government, and they have to be approved to claim it.

“The agency [they work for] makes the determination as to whether something is a conflict, and the only way they can figure that out is to know what you’re going to be doing,” said Rizzi. “Not everything is a conflict.”

It’s then up to the Office of Government Ethics to decide whether someone is eligible for a “certificate of divestiture” allowing them to take advantage of the break, since it’s a rare tax provision that is not administered by the IRS.

There have been cases where people have been forced to divest but deemed ineligible for the deferral. The rules could be a headache for those with illiquid assets that are hard to sell quickly.

And it also doesn’t apply to all forms of compensation. Stock options don’t count, for example, so someone joining the Trump administration could be forced to drop those, and not receive any compensatory tax benefit.

If Musk formally joined the administration, he could potentially be ordered to sell his stake in Tesla or Space X, a major federal contractor — something that may not interest him, especially given what would likely be a brief tenure in government. Offloading huge amounts of Tesla stock could potentially drive down its price.

Trump said Musk would join a commission that will “provide advice and guidance from outside of government” on how to “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies.”

When he backed out of contention for Treasury Secretary, Paulson said in a statement that “my complex financial obligations would prevent me from holding an official position in President Trump’s administration at this time.”

Rizzi says the break is aimed at cushioning the financial blow that can come with working for the government but that it’s not a reason by itself to serve.

“I have never seen anybody go into the government just for this,” he says.