Professor Ethan Yale, University of Virginia School of Law, has made available for download his research paper, Mutual Fund Tax Overhang. The Abstract is as follows:
The built-in gain in a mutual fund’s portfolio is referred to as “tax overhang.” Tax is imposed on investors who buy shares in mutual funds with tax overhang even though the gain accrued before their investment. The consequence is accelerated tax, increasing the shareholders’ effective tax rate. This article (1) explains why this occurs and why it is a problem, (2) describes the magnitude of the problem, (3) describes and illustrates avoidance strategies funds use to avoid the bad effects of tax overhang, (4) argues that reform is warranted, and (5) describes and evaluates the options for reform.Yale, Ethan, Mutual Fund Tax Overhang (July 1, 2019). Virginia Public Law and Legal Theory Research Paper No. 2019-38; Virginia Law and Economics Research Paper No. 2019-13. Available at SSRN: https://ssrn.com/abstract=3413063
Posted by Jessica Zhang, Associate Editor, Wealth Strategies Journal.