The Great ETF Tax Swindle: The Taxation of In-Kind Redemptions

Since the repeal of the General Utilities doctrine over 30 years ago, corporations must recognize gain when distributing appreciated property to their shareholders. Regulated investment companies (RICs), which generally must be organized as domestic corporations, are exempt from this rule when distributing property in kind to a redeeming shareholder. In-kind redemptions, while rare for mutual funds, are a fundamental feature of exchange-traded funds (ETFs). Because fund managers decide which securities to distribute, they distribute assets with unrealized gains and thereby significantly reduce the future tax burdens of their current and future shareholders. Many ETFs have morphed into investment vehicles that offer better after-tax returns than IRAs funded with after-tax contributions. Furthermore, this rule is now being turbocharged. Some mutual fund families have created ETF classes of shares for some of their mutual funds, which permits the ETF shareholders to remove the gains attributable to the shareholders of the regular share class. Another firm acts as a strategic investor to assist mutual funds in eliminating their unrealized gains through contributions and redemptions. These transactions permit current and future fund shareholders to inappropriately defer tax on their economic gains and give ETFs and other mutual funds with ETF share classes a significant tax advantage over other investment vehicles. This article considers various options that tax policymakers should consider to eliminate the ETF tax subsidy including explicitly extending this favorable tax treatment to all RICs by exempting fund-level gains from tax, repealing the exemption rule, limiting the amount of unrealized gains a fund can distribute, requiring ETFs to reduce the basis of their remaining property by the unrecognized gain of distributed property, or requiring ETFs to be taxed as partnerships

The Overlooked Corporate Finance Problems of a Microsoft Breakup

The paper identifies problems with the ordered breakup of Microsoft that seem to have been completely overlooked by the government, the judge, and the commentators. The breakup order prohibits Bill Gates and other large Microsoft shareholders from owning shares in both of the companies that would result from the separation. Given this prohibition, we show, dividing the securities in the resultant companies among the shareholders is not as straightforward as the government has suggested. Any method of distributing the securities that would comply with this mandate would either (i) impose a significant financial penalty on Microsoft\u27s large shareholders that is not contemplated by the order, or (ii) create a risk of a substantial transfer of value between Microsoft\u27s shareholders. In addition to identifying the difficulties and costs involved in the two distribution methods that would comply with the cross-shareholding prohibition, we examine how the breakup order could be refined to reduce these difficulties and costs. The problems that we identify should be addressed if a breakup is ultimately to be pursued and should be taken into account in making the basic decision of whether to break up Microsoft at all

Interactive Methods and Collaborative Performance: A New Future for Indirect Infringement

An individual is liable for patent infringement if he infringes one or more patented claims either directly under 35 U.S.C. § 271(a) or indirectly under 35 U.S.C. § 271(b) or § 271(c). In 2012, the Federal Circuit clarified its interpretation of § 271(b) and § 271(c) in the case of Akamai v. Limelight. However, the court failed to address issues of “divided” direct infringement, where two or more entities combine and together complete each and every step of a method claim, but no single entity does all of the steps. This Note walks through the history of the judicial interpretation of §§ 271(b) and (c) up until Akamai v. Limelight, discusses the decision itself, and acknowledges the accompanying criticism. This Note proposes a reformed test for cases of divided infringement: a finding of divided direct infringement should be a prerequisite for §§ 271(b) and (c) liability, but divided direct infringement liability under § 271(a) should not be possible absent the alleged infringer meeting the single entity rule

Corporate Governance: Still Broke, No Fix in Sight

Dissatisfaction with the governance of public companies is as old as the public company itself, but public concern about corporate governance is spasmodic. Prior reforms did not cure the ills of corporate governance, and there is little reason to think that the recent spate of reforms will be any more effective. The fundamental problem of corporate governance remains what it has always been: the separation of ownership and control. No reform can succeed unless it overcomes this contradiction. Corporate executives determined to preserve their privileges and a number of scholars deny this claim; in effect, these Panglosses consider the status quo the best of all possible worlds. Others recognize that corporate governance is broken and that initiatives recently instituted or proposed are inadequate. Several have proposed changes, some of which would be beneficial, but none promises to eliminate the separation of ownership and control. After a survey of the current debate over corporate governance, this article explains why the separation of ownership and control is the central problem of corporate governance and why past reforms have failed. The article then discusses the reforms instituted and proposed after the recent scandals and why they too will fail. The article concludes by urging a means of finally solving the problem of corporate governance by having the corporation\u27s nominees for the board chosen by a committee of the largest shareholders

Corporate Governance: Still Broke, No Fix in Sight

Dissatisfaction with the governance of public companies is as old as the public company itself, but public concern about corporate governance is spasmodic. Prior reforms did not cure the ills of corporate governance, and there is little reason to think that the recent spate of reforms will be any more effective. The fundamental problem of corporate governance remains what it has always been: the separation of ownership and control. No reform can succeed unless it overcomes this contradiction. Corporate executives determined to preserve their privileges and a number of scholars deny this claim; in effect, these Panglosses consider the status quo the best of all possible worlds. Others recognize that corporate governance is broken and that initiatives recently instituted or proposed are inadequate. Several have proposed changes, some of which would be beneficial, but none promises to eliminate the separation of ownership and control. After a survey of the current debate over corporate governance, this article explains why the separation of ownership and control is the central problem of corporate governance and why past reforms have failed. The article then discusses the reforms instituted and proposed after the recent scandals and why they too will fail. The article concludes by urging a means of finally solving the problem of corporate governance by having the corporation\u27s nominees for the board chosen by a committee of the largest shareholders