Hi, Charlie.
I searched Google Groups for the phrase you quoted. It found only THIS
thread!
A search for "mutual fund shares" found a few dozen (45) threads, but only a
half-dozen or so were about this specific question. Phil's question got
asked a half-dozen times, but never got a definitive answer. A few of the
responses were from me, and I said the same thing that I said earlier in
this thread: the exchange is taxable (as a sale) unless the taxpayer can
point to an Internal Revenue Code section that says otherwise - and nobody
in those threads ever posted any such authority.
Well, some did say that the fund manager said the exchange was tax-free, but
they never told us the manager's source for that interpretation. They never
even told us - and Phil never told us - the name of the fund involved so
that we could track down the manager's statement and the authority for it.
There was this comment from Dennis Munro, dated 8/17/02:
"There are some funds - at least in Canada - that do allow you to exchange
units within the "family" of funds that will not trigger any tax
consequences until the units are ultimately sold; ie removed from the family
of funds."
Phil, could you please tell us the name of the fund or the fund manager so
that we can go to their website and find their statement and their authority
for making it?
Even though I try to always remember to include the disclaimer than I've
been retired for a long time, I still care about the accuracy of my posts.
If my answers are not correct, then I sure want to know that! But I learned
long ago not to rely on what "they" say. I need IRC sections, or court
decisions, or other actual authoritative rulings.
I've spent an hour or two with Google, trying to find something definitive.
There are many prospectuses and sales brochures that talk about conversion
of Class B shares to Class A shares of various funds. Apparently, this is a
fairly common characteristic of many funds. Note that they prefer the term
"conversion", rather than "exchange", to describe the transaction.
These paragraphs from the 2004 prospectus of a Dryden fund might be
informative
(
http://prospectus-express.newriver....03&doctype=pros
:
<Paste>
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares -- which happens automatically approximately seven years
after
purchase -- is not a "taxable event." This opinion, however, is not binding
on
the Internal Revenue Service (IRS).
....
Remember, as we explained in the section entitled "Fund Distributions and
Tax
Issues -- If You Sell or Exchange Your Shares," exchanging shares is
considered
a sale for tax purposes. Therefore, if the shares you exchange are worth
more
than the amount that you paid for them, you may have to pay capital gains
tax.
<End Paste>
And these paragraphs from a 2004 Morgan Stanley prospectus
http://www.morganstanleyindividual....r/pdf/refbx.pdf :
<Paste>
Tax Considerations of Exchanges. If you exchange shares of the Fund for
shares of another Morgan Stanley Fund there are important tax
considerations. For tax purposes, the exchange out of the Fund is considered
a sale of the Fund's shares-and the exchange into the other fund is
considered a purchase. As a result, you may realize a capital gain or loss.
You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.
.....
Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event in the
future by the Internal Revenue Service.
<End Paste>
Both Dryden and Morgan Stanley state their conclusion that the conversion is
non-taxable, but neither cites a specific authority (except for Dryden's
"legal opinion") and both hint that the IRS might determine otherwise.
Other documents that I found have similar language. I'm not sure if they
are relying on Sec. 1031, Tax-Free Exchanges (which specifically excludes
marketable securities), or some other code section. Such exchanges need not
be reported in the year of exchange.
Bottom line: It appears that "everyone" agrees that such a conversion of
Class B shares to Class A shares of the same fund is non-taxable, but nobody
says exactly why. You should be able to rely on the opinions of these
"experts" to avoid any penalties, even if the conversion/exchange is someday
determined to have been a taxable event.
Since I haven't tried to record such a transaction in Quicken, I'll let you
guys figure out how to record it. You mention using a "split", but it seems
to me a share-for-share "acquisition" might fit better.
Remember, I've been retired for over a decade and tax rules change at least
daily, so please consult with your own CPA or tax attorney before filing
your return.
And if any tax professionals are reading along, please chime in here.
RC
--
R. C. White, CPA
(Retired - no longer licensed to practice)
San Marcos, TX
rc@corridor.net
"Charlie K" <Chas_K@excite.com> wrote in message
news:1104248074.153869.279590@f14g2000cwb.googlegr oups.com...
Quote:
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That's been discussed here before, more than once. Do a Google search on "exchange of mutual fund shares" in this group. There's no provision in Quicken to do this. What you can do is treat it as a split. All your old shares spliting to all your new shares then change the fund symbol to the new shares. That's what I did to keep the original purchase dates.
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Exchange of Mutual Funds
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