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May 22, 2012
Herzig: Exchange Funds
David J. Herzig (Valparaiso), Exchange Funds: A Proposal for Regulations, Finally, 135 Tax Notes 865 (May 14, 2012):
The economic downturn has created an investment market in which some tax-advantaged strategies have become favored. To avoid taxable diversification, taxpayers have turned to exchange funds. Through the rules in sections 351, 721, and 368, taxpayers can diversify a single stock position without recognition. Exchange funds have existed in one form or another since the 1930s. However, after 50 years of IRS acquiescence and minimal public discourse, the debate surrounding the technical rules has been renewed. This report discusses the basics of exchange funds and the regulation and legislative proposals the New York State Bar Association Tax Section submitted to Treasury. The author then explores those recommendations and makes a proposal of his own.
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