Managing Concentrated Public Stock Positions by Seeding an Exchange-Traded Fund
Our full paper is on SSRN
Basis Northwest registration opens on February 11, 2026.
New speakers announced weekly.
Make sure to fill out the Tax-Aware Long/Short (TALS) Working Group intake form if you would like to participate.
I’m shocked to say that 50 professionals already have.
The TALS Working Group will have 1-2 breakout sessions at Basis Northwest.
Here’s a funny story.
Six months ago, I was watching a webinar on seeding an ETF in-kind using a Section 351 transfer, and one of the attorneys giving the session casually mentioned the step transaction doctrine (here’s a gentle introduction).
I had already self-published a book about Section 351, co-authored an article for Kitces, and covered several launches (including TAX, EBI, AAUS, AAEQ, etc.)…
But I really wanted to understand how IRS might use the step transaction doctrine to scrutinize a Section 351 transfer, so Elie Rozner and I wrote a paper about it.
The paper is live on SSRN: Managing Concentrated Public Stock Positions by Seeding an Exchange-Traded Fund.
The chart above reveals far more activity than I anticipated: 39 ETFs and $8.7 billion in seed assets from individual accounts (not mutual fund conversions, etc.) since 2021.
I’ve been routinely updating these figures as people send me data.
Here are the main takeaways from our paper.
Section 351 ETF seeding allows clients to reposition concentrated low-basis stock into a diversified fund without immediate gain recognition, provided the contributed portfolio satisfies the 25/50 diversification tests.
Mechanical compliance with the 25/50 Tests is necessary but not sufficient. Courts and the IRS can apply substance-over-form principles to collapse formally separate steps into a single taxable exchange. We use two stylized fact patterns, Stuffing and Sequential Seeding, to illustrate how these attacks might unfold.
Advisers should assess step-linking risk before execution, document independent rationale during execution, and monitor post-launch activity and proposed legislation for developments that could affect Section 351 treatment.
In any event, the manuscript ended up at a trim 6,000 words, but it started at 12,000.
Which reminds me of the famous, though apocryphal, Mark Twain quote, “I would have written a shorter letter, but did not have the time.”
Well, we had the time.
Anyway, the actual source is, amazingly, Blaise Pascal.
Having been obliged to hasten the publication of the sixteenth, on account of a search made after it in the printing office, [Pascal] apologizes for its length on the ground that “he had found no time to make it shorter.”
The Project Gutenberg eBook of The provincial letters of Blaise Pascal, translating The Provincial Letters written between January 1656 and March 1657. Letter XVI, which contains the famous quote, was dated December 4, 1656.
This meme seemed appropriate.
Thanks for the link to the paper. I will read it.