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The Tax Report


April 13th, 2018

——– Company executives frequently end up with their Company’s stock with huge built in gains, and consequently they will pay a lot of tax if they sell the stock. Many of these successful people are stock rich, that is, they are very wealthy but it is all in the Company’s stock. They need cash to live and they need to diversify their holdings.

So the worlds greatest tax attorneys got together to find a way to get these successful women and men some spending money and diversification without currently selling their stock or paying current tax. With a Prepaid Variable Forward (PVF) they can get cash while their Company stock is held as a sort of collateral, with an uncertain number of shares to be delivered at some time in the future.

Typically the PVF secures a price range at which the Company stock will sell in the future. This gives the holder diversification, as they will use the proceeds advanced against the PVF to either buy other Investments or buy a house. This is a wise move, as many of these Company stocks are highly volatile!

Of course at some point the PVF terminates and the tax must be paid. This can get quite complicated from a tax angle.

The US Tax Court on April 19, 2017 released an opinion allowing for PVF’s to be modified and extended.

Thus the PVF has proven to be a successful strategy for hedging non-diversified stock holdings.

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