Accounting

Section 351 conversion ETFs promote investment tax strategy

Published

2 years ago

January 23, 2025

Clients with diversified yet heavily appreciated stocks could more effectively defer capital gains and avoid the tax hit of dividends by converting them into a newly burgeoning type of ETF.

Transferring the varied holdings into an ETF with a similar basket of investments based on the rules of Section 351 of the Internal Revenue Code enables what is known as an “in-kind” exchange of assets. The approach has existed for nearly a century, but a raft of new ETFs — starting with the launch last month of the Cambria Tax Aware ETF (ticker: TAX) — reflect how financial technology is applying it on a mass scale, according to Mebane “Meb” Faber, co-founder and chief investment officer of Cambria Investment Management. The quantitative management and alternative investments firm collaborated with ETF tax and operational advisory firm ETF Architect on the Dec. 18 start of TAX.

Appreciated stock portfolios — especially those using increasingly popular forms of direct indexing — can often get “stuck” in limbo with their rising values and the potential for realizing taxable capital gains, Faber said. Financial advisors could think of the Section 351 transfer as a 1031 like-kind exchange that is for stocks rather than other kinds of assets. Even though the tax law provision has existed for a long time, some “99.9% of people” that Cambria spoke with in several hundreds of calls last quarter hadn’t heard of Section 351 transfers, according to Faber. The Securities and Exchange Commission’s 2020 ETF Rule cleared the way for software and other technology powering new products that focus on the tax impact of asset location.

“These are all ideas and strategies that are going to get developed more over the next five years,” Faber said. “You’re going to see an enormous amount of interest in this in the next six months as people kind of get it and shift.”

‘Kind of a big deal’: How Section 351 ETFs work

The TAX ETF and other funds coming to market soon represent “a very investor-friendly trend” toward returns with less risk at a lower cost, according Brent Sullivan, a consultant on taxable investing product marketing and development to sub-advisory and ETF firms. Sullivan writes the Tax Alpha Insider blog, where he’s tracking a half dozen new or pending funds from Cambria and three other sponsors pitching the Section 351 transfer strategy. Sullivan has been following the launch of TAX closely for several months, and he wrote in a “28 Days Later” dispatch earlier this month with samples from his upcoming “memezine” explaining Section 351 conversions to advisors. (“I hate white papers,” Sullivan wrote. “They feel like homework. So, I wrote and illustrated an adviser’s guide to seeding ETFs in-kind using some words, but mostly memes.”)

Section 351 exchanges revolve around the idea of moving “disaggregated assets into an aggregated fund that can achieve lower cost and also better tax deferral” without booking any capital gains, he said. They could be beneficial to, for example, clients in “separately managed accounts that are way above cost basis so they can’t do tax loss-harvesting anymore,” according to Sullivan. In effect, stock assets in a status informally known as “locked” due to their potential tax burdens flow into a diversified ETF.

“It removes tax friction from the reallocation decision. It makes assets less sticky, and, in general, that’s good,” Sullivan said. “It’s kind of a big deal, and advisors are the ones who are going to be needing to vet these products, because oftentimes they don’t come with a track record.”

Just over a month after its inception, the TAX ETF has attracted $32.5 million of net assets. It carries an expense ratio of 0.49% and the requirements that no single positions in an incoming portfolio comprise more than 25% of the holdings and any that are over 5% add up to less than 50%. Cambria intends to open two more funds that use Section 351 conversions this year, with an ETF using the ticker “ENDW” that “tracks an endowment-style allocation” across global holdings at the end of the first quarter and another targeting global equities at the end of the second, according to Faber. Advisors have likely grown familiar with the fact that mutual funds are converting to ETFs, he noted. Section 351 transfers could drive more assets to ETFs.

“We knew there was going to be some demand for this idea and topic, and it was 10 times what we expected,” Faber said. “If you’re a taxable investor, particularly a high-tax investor, the last thing you want is dividends, because you’re paying taxes on those every year.”

The new ETFs are giving more advisors and their clients the opportunity to use a tactic that was previously only available to the wealthiest households, according to Sullivan.

“Meb is doing this all out in the open,” Sullivan said. “Normally this is only offered to family offices and in really one-on-one, behind-the-scenes sales. The public appeal is specifically what’s new about this moment.”

Accounting

FASB Standardizes Carbon Offsets Accounting Rules

Published

1 day ago

July 27, 2026

Business Finance News

FASB Standardizes Carbon Offsets Accounting Rules

In a decisive move toward standardized environmental financial reporting, accounting standards boards issued updated implementation guidance during the week ending July 25, 2026, regarding the formal recognition and valuation of corporate carbon offsets and environmental credits. The revised frameworks establish precise rules for how enterprises must measure, record, and disclose carbon credits on balance sheets, eliminating years of inconsistent reporting practices across public capital markets.

Under the finalized accounting standard, purchased carbon offsets can no longer be categorized under vague administrative expenses or unstandardized intangible asset accounts. Instead, organizations must classify environmental credits based on underlying operational intent—distinguishing between credits held for immediate compliance compliance obligations, long-term offset obligations, or active market trading. Furthermore, companies are required to evaluate carbon holdings for fair value impairment at the end of each reporting period, ensuring that depreciated or low-quality environmental credits do not distort corporate asset values.

The standardized rules carry significant implications for corporate audit committees and chief accounting officers. External audit firms are implementing rigorous verification protocols to validate the physical legitimacy, legal ownership, and scientific permanence of carbon credits claimed on balance sheets. Inaccurate or overstated carbon accounting claims now carry substantial financial litigation risk, alongside potential regulatory enforcement for misleading ESG disclosures.

To remain fully compliant, corporate accounting departments must establish centralized carbon tracking systems integrated into primary standard ERP ledgers. Accounting teams that proactively adopt standardized environmental reporting protocols will build investor credibility, streamline annual audit processes, and insulate their organizations against evolving regulatory scrutiny.

Accounting

Automated Tax Compliance Tools Reduce Risk

Published

1 day ago

July 27, 2026

Business Finance News

Automated Tax Compliance Tools Reduce Risk

Corporate tax departments reached a critical juncture in automated operational management. With nations worldwide rapidly enacting digital service taxes, localized value-added tax (VAT) mandates, and real-time electronic invoicing requirements, manual tax calculations have become obsolete. Modern corporate tax divisions are aggressively deploying AI-driven tax engine software to automate complex cross-border indirect tax calculations in real time.

The imperative for automated tax compliance stems from the sheer complexity of current trade policies and multi-jurisdictional commerce. E-commerce platforms, software vendors, and global manufacturers face constantly changing regional tax rates, statutory exemption rules, and cross-border tariff structures. Automated tax engines embed directly into enterprise enterprise resource planning (ERP) architectures, automatically applying correct tax codes at the point of sale, calculating real-time withholding amounts, and generating compliant e-invoices.

Automated audit trail generation represents another key advantage of modern tax tech integration. Advanced compliance platforms log every transactional tax determination on immutable digital ledgers, providing tax authorities with transparent, self-verifying audit trails. This capability drastically reduces the operational duration and administrative cost of corporate tax audits, protecting enterprises against severe penalties resulting from calculation errors or missed reporting deadlines.

For chief financial officers and tax directors, investing in automated tax compliance is a vital operational risk mitigation strategy. Automating routine tax calculations frees high-level accounting professionals to focus on strategic tax planning, transfer pricing optimization, and risk management in an increasingly complex global economic environment.

Accounting

Continuous Auditing Transforms Corporate ERPs

Published

7 days ago

July 21, 2026

Business Finance News

continuous auditing transforms corporate erps

As corporate accounting departments cross the threshold into late July 2026, the adoption of continuous, automated auditing systems has reached a definitive turning point. Driven by advances in artificial intelligence and deep integration with modern Enterprise Resource Planning (ERP) platforms, leading finance organizations are moving away from traditional, periodic post-hoc audits in favor of real-time, 100% transactional verification. This technological transition is redefining internal control environments, reducing compliance costs, and eliminating the structural delays inherent in legacy quarterly closing processes.

Unlike traditional auditing frameworks that rely on statistical sampling—a process that inevitably leaves operational blind spots—continuous auditing software monitors operational data feeds continuously. Every purchase order, electronic invoice, payroll disbursement, and cross-border wire transfer is automatically cross-referenced against established corporate governance parameters, regulatory tax schedules, and anti-fraud algorithms in real time. Anomalies or unauthorized ledger entries are flagged instantly, allowing internal audit teams to investigate and remediate compliance gaps immediately rather than months after the close of a financial period.

The implications for executive financial management are far-reaching. By embedding continuous verification directly into daily transaction workflows, chief financial officers gain uninterrupted visibility into the organization’s true financial standing. Real-time balance sheet auditing eliminates the severe operational bottlenecks associated with month-end and quarter-end financial reconciliations, freeing accounting professionals to focus on strategic financial modeling, tax planning, and capital allocation rather than manual data entry and spreadsheet consolidation.

However, implementing continuous auditing requires accounting leadership to invest heavily in data governance and technical upskilling. Internal audit teams must evolve from manual ledger reviewers into system architects capable of auditing complex algorithms and validating automated data pipelines. Accounting firms and corporate controllers that master continuous auditing will establish a resilient compliance framework capable of meeting stringent international regulatory standards with total transparency.