The name "351 Exchange" comes from Section 351 of the Internal Revenue Code ("IRC"). Section 351 permits a person to contribute appreciated property in exchange for shares of a newly formed corporation without recognizing a taxable event at the time of transfer, if certain rules are met.
In this application, the property being contributed is shares of stock or ETFs, in exchange for shares of a newly formed corporation, a new ETF.
To qualify, here are a few rules:
1) The contributor must be an eligible participant. In short, most can participate, but C corporations can cause issues, so they are generally excluded.
2) Each contributor must contribute a diversified portfolio. Diversification is defined by the IRS with two tests applied to each contributor's portfolio: Of the contributed portfolio, (1) the weight of the largest position must be no more than 25%, and (2) the sum of the weights of the top 5 positions must be no more than 50%.
#exchange #shares #section #contribute
In this application, the property being contributed is shares of stock or ETFs, in exchange for shares of a newly formed corporation, a new ETF.
To qualify, here are a few rules:
1) The contributor must be an eligible participant. In short, most can participate, but C corporations can cause issues, so they are generally excluded.
2) Each contributor must contribute a diversified portfolio. Diversification is defined by the IRS with two tests applied to each contributor's portfolio: Of the contributed portfolio, (1) the weight of the largest position must be no more than 25%, and (2) the sum of the weights of the top 5 positions must be no more than 50%.
#exchange #shares #section #contribute
2 months ago
