Imagine you have held a single company’s stock for decades. It’s worth millions, but your cost basis is very low. Selling means handing a large check to the IRS. For most investors, that’s just the price of success. But a growing number of wealthy clients — guided by sophisticated wealth managers — are finding a different path rooted in a law Congress passed more than a century ago to help small business owners incorporate. That law is Internal Revenue Code Section 351.
The paper Managing Concentrated Public Stock Positions by Seeding an Exchange-Traded Fund by Brent Sullivan, editor of Tax Alpha Insider, and Elliot Rozner, a New York-based research analyst, provides the most thorough public analysis to date of how this provision is being applied to exchange-traded funds, and where its limits lie. They explain how Section 351 works in this context; why Congress is hostile to tax-free diversification; and how patterns like “stuffing” and “sequential se
