I haven't seen much discussion vetting how the carryover basis works, specifically, is the tracing method allowed or is the taxpayer stuck with aggregate basis? What authority is everyone relying on for assuming basis in property doesn't have to be aggregated and spread among ETF shares received (such that 351 ETF shares all have equal basis)? The 'basis issue' is mission critical, particularly for those who are levering up to address diversification requirements with the plan to redeem high basis shares after the fact. I just haven't seen a deep dive on this and it doesn't seem as though the basis issue is well settled under IRC 358. Am I missing something?
1) from first-hand experience, any aggregation will be at the tax lot level at the cost basis AND holding period level. The idea behind 351 conversion is to keep you pre and post conversion tax position identical, which means averaging wouldn't really work.
2) you can't lever up to achieve diversification. see the final images in this blog post, or my short book on 351 for additional sources.
I haven't seen much discussion vetting how the carryover basis works, specifically, is the tracing method allowed or is the taxpayer stuck with aggregate basis? What authority is everyone relying on for assuming basis in property doesn't have to be aggregated and spread among ETF shares received (such that 351 ETF shares all have equal basis)? The 'basis issue' is mission critical, particularly for those who are levering up to address diversification requirements with the plan to redeem high basis shares after the fact. I just haven't seen a deep dive on this and it doesn't seem as though the basis issue is well settled under IRC 358. Am I missing something?
Two points:
1) from first-hand experience, any aggregation will be at the tax lot level at the cost basis AND holding period level. The idea behind 351 conversion is to keep you pre and post conversion tax position identical, which means averaging wouldn't really work.
2) you can't lever up to achieve diversification. see the final images in this blog post, or my short book on 351 for additional sources.