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Mutual fund hedge to fund nonquailied plans


Guest wmacdonald

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Guest wmacdonald

Mutal fund hedge transaction- Has anyone heard about the pending PLR on the mutual fund hedge transaction? The concept is being used by a few firms, albeit small. It works like this, if a pool of mutual funds are purchased to informaly fund a nonqualified deferred compensation plan, and the company received dividend distribution and/or re-balance, the proportion of mutual funds held (triggering what normally would be capital gain event)they can defer those taxable events until the mutual funds are used to pay the nonqualified liabilities. This transaction is being based on Code Section 1221 and 446, and the regs related to both.

It's my understanding, that from an accounting standpoint, you can not record the asset on the balance sheet, as it does not run through the income statement, but runs through equity.

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