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Exchange Funds: A Proposal for Regulations, Finally

8 Pages Posted: 16 May 2012  

David Herzig

Valparaiso University Law School

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 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.

Keywords: Tax, Exchange Funds, 351, 721, 368, New York State Bar, diversification, taxation, tax planning, stock

JEL Classification: H20, H21, H24, H25, H26, K34

Suggested Citation

Herzig, David, Exchange Funds: A Proposal for Regulations, Finally (May 15, 2012). Tax Notes, Vol. 135, p. 865 (May 14, 2012). Available at SSRN:

David Herzig (Contact Author)

Valparaiso University Law School ( email )

656 S. Greenwich St.
Valparaiso, IN 46383-6493
United States
219-465-7809 (Phone)
219-465-7872 (Fax)


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