Question 1

What is a Section 351 ETF exchange?

Accepted Answer

A Section 351 exchange is a provision of the Internal Revenue Code that may allow an investor to contribute appreciated securities to a newly formed ETF without triggering capital gains recognition at the time of transfer, depending on the investor's specific circumstances and with the involvement of qualified tax counsel.

Question 2

Who is a Section 351 exchange relevant for?

Accepted Answer

Section 351 exchanges are most relevant for investors with diversified, heavily appreciated portfolios in taxable accounts where traditional tax-loss harvesting capacity has been exhausted and rebalancing would trigger a significant tax event.

Question 3

Does Stance Capital offer Section 351 exchange services?

Accepted Answer

Stance Capital's role in a Section 351 exchange is investment management. The firm serves as portfolio manager for the ETF into which securities are contributed. The legal and tax structure of the exchange requires qualified tax counsel and is outside Stance's scope of services. Section 351 may allow the deferral of capital gains at the time of transfer depending on the investor's specific circumstances.

Question 4

How does a Section 351 exchange differ from a standard ETF conversion?

Accepted Answer

A standard ETF conversion typically refers to converting a mutual fund to an ETF structure. A Section 351 exchange involves contributing existing appreciated securities held in a taxable account to a newly formed ETF, with the potential for capital gains deferral at the time of contribution depending on circumstances and tax counsel involvement.

Question 5

What is the minimum portfolio size for a Section 351 exchange?

Accepted Answer

There is no universal minimum, but operational and legal costs associated with forming a new ETF mean that Section 351 exchanges are generally most viable for portfolios of meaningful scale. Speak with qualified tax counsel and your investment advisor to determine whether the structure is appropriate for your situation.

351 Exchanges