A long-standing provision of the tax code that lets concentrated holdings be contributed into a diversified fund structure without triggering an immediate gain.
Investors holding a large, low-basis position face a familiar bind: diversifying means realising the gain, and holding means carrying the risk.
A 351 exchange offers a third path. Contributing qualifying securities into a fund structure in exchange for shares can defer the gain while the underlying exposure becomes diversified.
The mechanics are specific and the eligibility rules are strict, so this is a strategy to evaluate with a CPA before a position ever reaches the point of forced sale.
For informational and educational purposes only. This material is not intended to provide, and should not be relied upon for, tax or legal advice. Tax laws and their application vary based on individual circumstances and are subject to change. The availability and potential benefits of the strategies discussed depend on each business owner’s specific circumstances, transaction structure, and applicable law. Consult your tax and legal professionals before implementing any strategy discussed.