Investors contribute appreciated securities in kind to a newly formed fund and receive fund shares in return. Nothing is sold, so when the requirements are met no gain is recognized. Cost basis and holding period carry over to the new shares. As Matthew Bucklin puts it, the 351 exchange is the 1031 for equities.
Support
Frequently Asked Questions
What Qualifies, What the Rules Require, and How the Marketplace Works
The questions advisors and asset managers actually ask about Section 351 exchanges, answered plainly. Ask the assistant below, or browse by topic.
Ask a QuestionAnswers drawn from our 351 exchange knowledge base
The Basics
No. A qualifying exchange defers tax. It does not erase it. Basis and holding period carry over to the fund shares, so a later sale can trigger the deferred gain. What changes is timing. The client decides when to realize, instead of being forced to sell in order to reposition.
Both carry over to the fund shares. A position held for years keeps its long term character. This is why the exchange defers rather than eliminates. The embedded gain travels with the shares.
The investors contributing securities must together own at least 80 percent of the fund immediately after the exchange. On a new ETF launch that has to be coordinated across every contributor in the same contribution window, which is the problem the marketplace solves.
Section 351 does not impose a lock up on the shares you receive. They trade like any other ETF. Selling realizes the deferred gain, so how long to hold is a tax decision rather than a rule. Confirm the specifics for a given fund with your tax advisor.
What Qualifies
11individual stocksThe minimum when the portfolio is all single
names.
1 + 1one stock, one ETFThe ETF look through carries the
diversification.
1diversified ETFA single broad fund can satisfy the test
alone.
Two limits, measured at the time of the contribution:
The platform runs both tests and shows the measured result against each limit, so you know a portfolio qualifies before you pitch it.
25%No single position may exceed 25 percent of the contributed portfolio’s value.
50%Positions larger than 5 percent may not together exceed 50 percent of the portfolio.
Generally eligible
Listed equities, ETFs, and closed end funds. Fund positions are looked through to their underlying holdings for the test.
Not eligible
Mutual funds, private or restricted stock, illiquid securities, and spot crypto. Cash may be contributed but does not count toward diversification.
A failing portfolio is usually a fixable one. Trimming an oversized position, contributing part of the account, or pairing the holdings with a diversified ETF will often bring it inside the limits. The platform shows which position causes the failure and by how much.
Cash can be part of a contribution, but it does not count toward the diversification test. Plan the securities side to clear 25/50 on its own.
For Advisors
Register, load the holdings, and run the diversification test. You get a pass or fail against each limit, the positions driving the result, and an exportable summary, all before any client conversation.
No separate registration is required to use the software. You work within your existing regulatory posture and through your existing custodian relationships. ExchangiFi is a technology provider. It does not take custody of assets or move securities.
Test results, position level detail, and an exportable record of the contribution, verified and auditable. Your own counsel and tax advisor sign off on the transaction itself.
The marketplace lists open 351 ETFs with strategy, expense ratio, contribution deadline, and committed amount. You review the funds accepting contributions, pick one that fits the client's exposure, and coordinate the in kind contribution through the platform.
For ETF Issuers
Register as an issuer and publish the fund with its strategy, expense ratio, launch date, and contribution deadline. Advisors evaluating contributions see the listing and can commit portfolios against it during the open window.
Instead of launching with a token seed and hoping for flows, the fund opens with contributed client portfolios already in it. Advisors bring appreciated positions their clients were reluctant to sell, and the fund starts with real assets on day one.
Yes. Contribution windows, minimums, and eligibility criteria are set by the fund. Aggregate testing across all committed portfolios shows whether the launch as a whole clears the requirements, not only each portfolio on its own.
Counsel, an administrator, a custodian, and authorized participants, plus the fund's registration work. Section351Exchange.com keeps a service provider database and a prelaunch checklist covering the sequence.
The Platform
No. ExchangiFi is a technology company. It is not an investment adviser, broker dealer, law firm, or accounting firm. It does not recommend funds and does not receive compensation tied to a transaction. It provides software that tests portfolios and coordinates in kind contributions.
Your custodian does. ExchangiFi never takes custody of client assets and does not move securities. The platform coordinates the process and produces the record. The custodian and the fund's service providers execute it.
Pricing depends on whether you are contributing portfolios or launching a fund. Contact us and we will walk through what applies to your situation.
Register, choose your role, and load a portfolio or list a fund. If you would rather talk first, book a meeting. Advisors can take a 15 minute demo, and asset managers can walk their launch timeline with us.
Go Deeper on the 351 Exchange
Four companion resources, each with its own database.
351Conversion.com
Tax Aware Investing
Taxable investment questions, plus a database of tax-aware strategies and the managers running them.
Visit Site 351Exchange.comAdvisors and Legal Analysis
A database of advisors who have completed a 351 exchange, with legal analysis of the structure.
Visit Site Section351ETF.comThe 351 ETFs
Every 351 ETF that has launched, with detail on strategy, structure, and how each came together.
Visit Site Section351Exchange.comNews and Service Providers
News, regulatory updates, a service provider database, and a prelaunch checklist for new funds.
Visit SiteBring a Portfolio to the 351 Exchange Marketplace
Register to review open 351 ETFs, run the 25/50 diversification test on a client portfolio, and coordinate the in-kind contribution end to end.
Request to Join Our Community
Advisors, ETF issuers, service providers, and counsel comparing notes on eligibility, upcoming launches, regulatory developments, and tax aware strategy.