Chalk up a win for asset managers in the Congressional battle over reshaping the U.S. tax regime. For everyone else, however, the celebration will have to wait.

Thanks to a last minute revision to the Senate’s tax proposal on Thursday, overseers of professionally managed portfolios appear to have received an exemption from a proposed rule that could increase taxes paid by the sellers of securities.

But don’t pop the champagne just yet. While “regulated investment companies,” such as mutual funds and exchange-traded funds, catch a break, the provision is still slated to apply to investors in these funds, as well as owners of individual securities.

The U.S. Capitol

“It’s a step in the right direction,” said Thomas Faust, chairman and chief executive of Eaton Vance Corp., who’s been lobbying against the proposal. But “the effort to get this stricken continues.”

The Senate’s tax overhaul plan requires sellers that hold more than one batch of a particular security, known as a ‘‘lot,’’ to sell the one they’ve owned longest first. So, for example, that stake in Facebook Inc. you picked up back in 2012 would have to be sold before the one you bought last week. Called the “first-in, first-out rule,” the tweak might sound minor. But it could massively increase investors’ tax bills because the levy on each sale depends on how much the lot has gained since it was purchased.

Tax Inefficiency

This isn’t what individual investors want to hear, and many in the fund industry aren’t pleased either. Tax efficiency is often emphasized by issuers who want to convince moms-and-pops that it makes sense to put their money to work in the market rather than leaving it in a savings account.

“We believe that all investors should continue to have the ability to manage their taxable gains and losses by selecting particular tax lots of their holdings to sell,” a spokesman for $4.7 trillion Vanguard Group Inc. said in a statement, adding that the company would continue advocating for the proposal to be scrapped. The Investment Company Institute, which lobbies on behalf of the fund industry, is also pushing senators to ditch the proposal.

Nonetheless, the exemption has asset managers breathing a sigh of relief—particularly those with large mutual fund businesses. Already under siege from a shift away from stock pickers and toward passive management, mutual funds would have suffered more than ETFs under this regime, according to Marcia Wagner of the Wagner Law Group in Boston.

Kill the Bill

ETFs typically track an index, so they have less trading to tax than actively managed mutual funds. They are also able to give out securities when they redeem shares, again reducing capital gains.

“If the provision did become law, it could be an even bigger boost to ETFs,” according to Jeffrey Levine, chief executive and director of financial planning at BluePrint Wealth Alliance and president of Fully Vested Advice Inc.

The Senate’s plan has passed through committee and Republican leaders have said it will be put on the Senate floor the week of Nov. 27. The proposal could change as amendments are added. Then, the bill will have to be reconciled with the version passed by the House on Nov. 16.

Faust is optimistic that somewhere in the process, fund managers can get first-in, first-out ditched altogether.

“It would certainly be regrettable—bad for investors, bad for markets, ultimately bad for our economy—if this is allowed to become law,” he said. “I think we have a good shot at getting this pulled out.”

—With assistance from Zachary R. Mider and Ben Bain

Bloomberg News