Exchange Funds: A Proposal for Regulations, Finally

22 Pages Posted: 20 Jun 2012

See all articles by David Herzig

David Herzig

Valparaiso University Law School; Ernst & Young

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Abstract

The current economic downturn has created an investment market where certain tax-advantages have become favored. In order to avoid taxable diversification, taxpayers have turned to exchange funds. Through the rules in sections 351, 721, and 368 of the Internal Revenue Code, taxpayers can diversify a single stock position without recognition. Exchange funds are not a new phenomenon; they have existed in one form or another since the 1930s. However, after fifty years of acquiescence by the Internal Revenue Service (IRS) and minimal public discourse, the debate surrounding the technical rules has been invigorated. This report discusses the basics of exchange funds and the regulation and legislative proposals set forth by the New York State Bar Association Tax Section to the Treasury. The author then explores the recommendations and makes a proposal of his own.

Keywords: tax, exchange funds, REIT, RIC, real estate investment funds, registered investment company, alternative investments, 351, 721, 368, tax planning, diversification, New York bar

Suggested Citation

Herzig, David and Herzig, David, Exchange Funds: A Proposal for Regulations, Finally. Tax Notes, May 14, 2012, Valparaiso University Legal Studies Research Paper No. 12-07, Available at SSRN: https://ssrn.com/abstract=2088135

David Herzig (Contact Author)

Ernst & Young ( email )

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Valparaiso University Law School ( email )

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Valparaiso, IN 46383-6493
United States
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HOME PAGE: http://www.valpo.edu/law

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