By Andrew Bary

The coming twin IPOs of Bill Ackman's closed-end fund and investment management company could cause tax headaches for investors.

To entice investors for the closed-end fund, Pershing Square USA (ticker PSUS) buyers will get 20 free shares of Ackman's management company, Pershing Square Inc. (ticker PS), for every 100 shares purchased of the closed-end fund.

The issue for investors is how to allocate the cost basis between the two stocks. That will determine taxes paid when either or both are sold. The cost basis is price used for calculating taxes. If the cost basis of a stock is $45 and it is sold for $50 a share, the gain is $5 per share.

In the prospectus for the management company, Pershing Square acknowledges there is no established IRS tax guidance for determining the cost basis in such a twin offering.

"No statutory, administrative or judicial authority directly addresses the treatment of a transaction similar to the combined offering for U.S. federal income tax purposes," the prospectus states.

This means investors who participate in the deal can't be certain of the appropriate tax treatment.

Ackman, the Pershing Square CEO, came up with the novel structure to lure investors to the closed-end fund after pulling the deal in 2024 due to insufficient demand when he offered no such bonus.

The closed-end fund IPO market is moribund with little to no issuance in the past two years because of the tendency of funds to trade at discounts to their asset values after issuance. That makes investors unwilling to buy new deals.

Barron's has estimated that buyers of the Ackman closed-end fund could get a roughly 10% bonus in shares of the management company. The closed-end fund offering could total $5 billion to $10 billion.

We estimate that an investor buying 100 shares of Pershing Square USA buyer for $5,000 -- the shares are due to be priced at $50 a share -- could get about $500 in stock in Pershing Square Inc. assuming a $10 billion market value and about 400 million outstanding shares in the management company.

Pershing Square proposes that investors allocate their cost basis between the two stocks based on the relative fair market values once they begin trading on the NYSE. Closed-end funds issue a fixed number of shares which then trade publicly.

Based on our example above, investors might allocate roughly 90% of their cost basis to Pershing Square USA and 10% to Pershing Square Inc.

Under Pershing Square's preferred method, " ....you must allocate the purchase price between the PSUS Shares and the shares of our common stock you received pursuant to the combined offering based on the relative fair market values of the shares acquired in the combined offering," the prospectus states.

New York tax expert Robert Willens argues the better approach is for investors to allocate the full cost basis to the Pershing Square USA closed-end fund shares and zero to Pershing Square Inc. stock since investors are getting the management-firm shares for free.

"The investor would treat the entire amount invested as his or her basis in the PSUS stock (rather than bifurcating it between PSUS and PSI as the prospectus recommends) and would have a gain on the PSI stock only when such stock was sold," Willens tells Barron's in an email.

In a client missive Friday, Willens wrote his approach has some support from an obscure IRS ruling in a situation where investors in one company got rights to buy stock and bonds in an unrelated company. The cost basis there was determined to be zero.

Some buyers of Pershing Square USA might be tempted to sell their bonus Pershing Square stock after the deal. In the Willens-favored tax treatment, they would face a sizable tax bill given a zero cost basis. They would be taxed at full ordinary income-tax rates if the shares were sold within a year.

Another twist is that brokers may not use the tax treatment preferred by Pershing Square. "...this allocation of tax basis may differ from the allocation of the purchase price for certain purposes by your broker," according to the prospectus.

Given the ambiguity, the management-firm prospectus states that investors "are urged to consult your own tax advisor regarding the tax consequences of participating in the combined offering, including the allocation of tax basis between the PSUS Shares and shares of our common stock."

However, it may be tough for accountants to give guidance given the lack of precedence. The IRS should ultimately decide on the right treatment, but that could take time.

Write to Andrew Bary at andrew.bary@barrons.com

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March 13, 2026 13:54 ET (17:54 GMT)

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