question re. capital gains tax on "mandatory exchange"

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lowerleisureclass
Posts: 67
Joined: Thu Apr 24, 2014 3:05 pm

question re. capital gains tax on "mandatory exchange"

Post by lowerleisureclass »

Greetings bogelheads;

I have a question that Mr. Google has not been able to help me with. I bought 100 shares of iShares TR NYSE 100 in 2010 in a taxable account, and they have now been liquidated as a "mandatory exchange" to cash because iShares closed that fund. I assume that the IRS will treat this as capital gains just as though I were the one initiating the sale, but have not been able to find any IRS publication regarding mandatory exchanges and how they are treated/how they should be reported/etc. Does anyone out there have any insight as to which IRS publication I can consult about the tax implications of of a mandatory exchange to cash?

thanks!
"At either end of the economic spectrum there lies a leisure class." -- Eric Beck, rock climber
dad2000
Posts: 697
Joined: Fri Feb 03, 2012 6:04 pm

Re: question re. capital gains tax on "mandatory exchange"

Post by dad2000 »

This isn't official from the IRS, but otherwise seems to answer your question: https://ttlc.intuit.com/questions/14608 ... e-of-stock
Topic Author
lowerleisureclass
Posts: 67
Joined: Thu Apr 24, 2014 3:05 pm

Re: question re. capital gains tax on "mandatory exchange"

Post by lowerleisureclass »

Thank you; I had seen that but since it (and everything else I'd seen) were about stock-to-stock exchanges I was curious to see if I could find anything more specific about fund closure.

I did find just this, however, which also seems fairly conclusive though it too isn't from the IRS: http://www.fa-mag.com/news/what-happens ... 11599.html.

Oh, well, eventually I was planning on moving that to Vanguard anyway.
"At either end of the economic spectrum there lies a leisure class." -- Eric Beck, rock climber
Gill
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Joined: Sun Mar 04, 2007 7:38 pm
Location: Florida

Re: question re. capital gains tax on "mandatory exchange"

Post by Gill »

You don't need to look further. An exchange for cash whether mandatory or not constitutes the recognition of a capital gain and is taxable to you in the year of the exchange.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
newbie001
Posts: 438
Joined: Mon Nov 24, 2008 12:50 am

Re: question re. capital gains tax on "mandatory exchange"

Post by newbie001 »

Interesting question. Sometimes involuntary conversions of property, even if cash is received, qualify for nonrecognition treatment if the proceeds are thereafter re-invested in similar property. Unfortunately, though, the vanilla closing of a mutual fund is not going to qualify.

Publication 544 talks a bit about “involuntary conversions.” http://www.irs.gov/pub/irs-pdf/p544.pdf

Section 1033 is the relevant statute: http://www.law.cornell.edu/uscode/text/26/1033

A nice sampling of Section 1033 cases. http://www.unclefed.com/Tax-Bulls/Index ... olconv.pdf Some of those cases/rulings, e.g., Rev. Rul. 55-717, illustrate that taxpayers often have to climb very high hurdles to get relief under Section 1033.
Topic Author
lowerleisureclass
Posts: 67
Joined: Thu Apr 24, 2014 3:05 pm

Re: question re. capital gains tax on "mandatory exchange"

Post by lowerleisureclass »

Thanks all; I appreciate the responses, especially the specific links. I figured it would be treated just like any other sale, but it's nice to know for sure.
"At either end of the economic spectrum there lies a leisure class." -- Eric Beck, rock climber
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