Variable prepaid forward contract

A variable prepaid forward contract is an investment strategy that allows a shareholder with a concentrated stock holding to generate liquidity for diversification or other purposes. Additionally, the shareholder will receive cash in hand without paying the capital gains taxes that would apply to a security disposal.

The PVF allows the investor to receive an up-front payment (typically, 75-85% market value) in exchange for delivery of a variable number of shares or cash in the future. Since the contract establishes floor and threshold prices that govern how many shares (or cash equivalent) are returned at a given market price, the investor will be protected against downside risk below the floor while enjoying appreciation potential up to the threshold.

• Tax shelter

Browning, Lynnley (2008-02-11). "U.S. Wonders if Stock Deal Is Tax Abuse". The New York Times.

• Jagolinzer, Alan D.; Matsunaga, Steven R.; Yeung, P. Eric (December 2007). "An Analysis of Insiders' Use of Prepaid Variable Forward Transactions". Journal of Accounting Research. 45 (5). Accounting Research Center: 1055. doi:10.1111/j.1475-679X.2007.00260.x. S2CID 154430656. Archived from the original on 2012-01-13.
• "Anschutz v. Comm'r" (PDF). Tax Court Opinion. July 2010.

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