Hi,
I'm hoping to drastically reduce taxes by either being able to some how transform the short term to long term gain, or learn of some other method to reduce our tax burden based on the following situation. Thanks
We invested in Brandywine Fund long ago because we liked the style and
competence of the manager, Friess Associates. In early 2000's, Friess
transferred operation of the fund to AMG Capital Management, but continued as
the advisor, choosing all stocks bought and sold for the fund. During 2020
and 2021, Brandywine Fund value increased dramatically along with the rest of
the US stock market.
On March 22, 2021, the AMG board of trustees announced they had fired Friess
Associates as fund manager and replaced them with one of their affiliates,
Boston Common Asset Management. They took a similar action for the Brandywine
Blue Fund, replacing manager Friess Associates with Veritas Asset Management.
Along with this action, AMG renamed the funds:
Brandywine Fund -> Boston Common Global Impact Fund
Brandywine Blue Fund -> Veritas Global Real Return Fund
Accompanying this change, they drastically altered the funds' objectives and
management style. E.g., Brandywine Fund mainly invested in US stocks with
promising potential for capital appreciation. Boston Common Global Impact
Fund will invest in stocks around the world, with only a fraction guaranteed
to be US stocks. We don't know anything about Boston Common or their
investment track record. We researched Friess and the Brandywine Fund's past
performance for months before purchasing any shares. AMG's sudden change of
managers is like we sold Brandywine and bought a new mutual fund sight unseen.
Apparently the tax code also treats the fund transition as a sale. Because the
fund objectives changed so drastically, AMG issued a large distribution on
March 19, 2021. The majority of the distribution is classified as short-term
capital gains (35% tax rate). [I assume they sold off a lot of stocks, most
of which Friess had probably bought within the short-term capital gains
period.] If they had told us their plan ahead of time, we could have sold
some or all of our Brandywine shares taking long-term capital gains (20% tax
rate).
AMG "announced" the change by sending me an email on March 24th titled, "AMG
Managers Brandywine Fund Summary Prospectus" with an attached PDF. It seemed
like the typical annual message all mutual funds send to make sure I have the
current Prospectus. Nothing in the boilerplate email body indicated the
Prospectus had changed drastically. I filed it without opening the
attachment.
On April 14th, AMG sent me an email titled, "Your AMG Funds Quarter-end
Statement is Now Available Online". This is normal. All mutual funds send me
quarterly statements. Normally Brandywine Fund only issues dividends in
December, so a March quarter statement merely states our current account
value. Nothing in the email body indicated anything special had occurred. I
did not bother logging to view the statement. If I had, I would have seen the
immense capital gains distributions.
On April 21st, AMG sent me an email titled, "AMG Boston Common Global Impact
Fund Important Information" with an attached PDF Supplemental to Prospectus.
This was the first I had seen the new fund name and did not know it was
concerned with Brandywine Fund. Eventually I looked into it and discovered
the sordid details.
IRS first quarter estimated taxes are due on April 15th. The taxes on a
distribution as large as we received are nowhere near covered by our biweekly
paycheck tax withholding. We should have paid the IRS a large sum in estimated
taxes by April 15th. I was not even aware we had received the massive capital
gains distribution until after April 21st.
I made an estimated payment to the IRS on May 6th. Likely we will not owe any
late penalty because the estimated payment will cover more than 110% of our
2020 tax liability.
The real bummer about this underhanded exchange of funds is that a large share
of the March 19th distribution is short-term gain, which we will owe 35%-37%
tax. Had we known of AMG's scheme ahead of time, we could have sold all of
Brandywine Fund as a long-term gain, taxed at 20%.
