Enter the Nixon-era tax law. In 1969, Congress decreed that mutual funds can hand over appreciated stocks to withdrawing investors without triggering a tax bill. Lawmakers never explained why they blessed the industry with this unique break, but back then, it didn’t seem like much of a giveaway. Mutual funds rarely took advantage of it, because their investors preferred cash payouts.I am going to assume that they didnt want to double dip on taxes, taxing the increase then taxing the income of the withdrawn investor. Nixon era was just to throw a time period and after a long time unintended consequences come into play.