Section 351 exchange complete guide covering control rules, diversification, eligible assets, advisor duties, and what to expect.
⎯ The Tax Strategy Hub for Section 351 Conversions
Defer Capital Gains. Keep More of What You've Built.
A Section 351 conversion lets you move a concentrated stock position into a diversified portfolio—without triggering the tax event. We quantify the savings, compare the strategies, and show you exactly what's at stake.
Advisors using 351 conversions have deferred hundreds of millions in capital gains taxes for their clients.
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Trillion in Mutual Funds & SMAs
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These figures reflect representative 351 conversion scenarios. Your results depend on position size, cost basis, and holding period. Model your own numbers with our calculator.
What Is a 351 Conversion—and Why Does It Matter for Tax Planning?
Under IRC Section 351, you can transfer appreciated securities into a newly formed investment company in exchange for shares—without recognizing a taxable gain. The result: your concentrated position becomes a diversified portfolio, your cost basis carries over, and the capital gains tax you would have owed stays deferred.
For financial advisors managing high-net-worth clients with concentrated equity positions, this is one of the most powerful tax deferral strategies available. Unlike a simple sell-and-reinvest approach, a 351 conversion avoids the immediate federal capital gains hit—often 20% plus the 3.8% net investment income tax—and preserves wealth that would otherwise go to the IRS.
This site exists to quantify that advantage. We don’t walk through compliance steps or fund mechanics. We answer the question advisors and investors ask first: “How much will this actually save?”
How a 351 Transfer Works
A simplified overview of the conversion mechanics
Transfer Appreciated Securities
Move your concentrated equity into a newly formed investment company.
Receive Proportional Shares
Exchange your position for fund shares at equivalent fair market value.
Basis Carries Over
Your original cost basis transfers — no taxable event is triggered.
Diversified. Tax-Deferred.
Your capital is now deployed in a diversified fund with tax deferred.
THE RESULT
No taxable gain recognized at conversion
Cost basis carries over from original shares
Concentrated position diversified immediately
Capital gains tax deferred — often indefinitely
Latest 351 Conversion Analyses
Explore our latest analyses on 351 exchanges, tax basis strategies, savings projections, and rules that shape Section 351 conversions. Built for advisors who need the numbers, not the theory.
Key SEC and IRS rules for a 351 conversion, including diversification tests, custodial setup, prospectus alignment, and eligibility factors.
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Learn how Tax Liability Insurance protects against IRS risks in 351 conversions, covering potential tax liabilities if tax-free treatment fails.
Discover how Section 351 conversions and ETFs allow indefinite tax deferral and why this strategy is often seen as a loophole for wealthy investors.
Understand the look-through rule in 351 exchanges and how ETF diversification impacts IRS compliance and tax-deferred portfolio transfers.
351 Conversion vs. Selling and Reinvesting: A Side-by-Side Tax Comparison
The most common alternative to a 351 conversion is the simplest one: sell the concentrated position, pay the tax, and reinvest. Here’s what that trade-off looks like on a $3M position with a $400K cost basis.
FACTOR
SELL & REINVEST
EXCHANGE FUNDS
LONG-SHORT TAX LOSS HARVESTING
351 CONVERSION
Federal Capital Gains Tax
~$547K owed immediately
~$547K owed immediately
~$547K owed immediately
$0 at conversion
Net Investable Amount
~$2.45M after tax
~$2.45M after tax
~$2.45M after tax
$3M (full position value)
Diversification
Immediate
Immediate
Immediate
Immediate (via fund structure)
Cost Basis
Reset to market value
Reset to market value
Reset to market value
Carries over from original shares
Estate Planning Benefit
None (tax already paid)
None (tax already paid)
None (tax already paid)
Potential step-up in basis at death
10-Year Compounding Advantage
Reduced by tax drag
Reduced by tax drag
Reduced by tax drag
Full capital compounds tax-deferred
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Assumes 20% federal long-term capital gains rate plus 3.8% net investment income tax. State taxes not included. Actual results vary based on individual circumstances.
Real Scenarios. Real Tax Savings.
Every position is different. These anonymized case studies show how Section 351 conversions perform across a range of position sizes, sectors, and client profiles.
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