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How have "quantitative hedge funds" not paid their "fair share" of taxes? Are you suggesting that they evade taxes?

by whatok 8y ago

heavenlyblue 8y ago
Yeah - can we get some evidence or at least a good article about this one?
opportune 8y ago
https://www.thedailybeast.com/trump-moneymans-dollar7-billion-secret-war-with-the-irs https://www.thedailybeast.com/trump-moneymans-dollar7-billio... The IRS’s wording suggests that other funds may have also been improperly using basket options. I’m admittedly not even close to being a tax law expert so I can’t really offer much more analysis I’m pretty sure I was wrong that the taxes were being used as arbitrage, though. The allegedly unpaid taxes seem to be based on payments out of the fund to employees
- whatok 8y ago
  So they currently have a tax dispute with the IRS over something that was legal at the time and since changed. Why should they be going to jail over that?
JumpCrisscross 8y ago
I think they're referring to basket options. TL; DR It's a non-story for all but financial engineering geeks. "Deutsche Bank and Barclays used the options structure to open accounts for their clients in their own names, creating the illusion that they owned the assets. But in fact, the hedge funds exercised complete control over the assets, executed all the trades and raked in all of the trading profits, according to the report. The hedge funds exercised the options soon after the one-year mark and claimed that the trading profits were eligible for the 20 percent (previously 15 percent) tax rate that applies to long-term capital gains on assets held for at least a year. The report contends that those options were actually short-term trades that should have been taxed at the ordinary income rate of 39 percent, which would otherwise apply to investors in hedge funds engaged in daily trading" [1]. Market makers are taxed differently from other investors. Certain market makers tried to "rent" their low-tax status to hedge funds. All this resulted from a weird 1999 law trying to fix a loophole in some other arcane law [2]. Last I heard, the IRS charged the market makers for the investors' short-term gains [3], and did so retroactively. [1] https://www.washingtonpost.com/business/economy/senate-report-barclays-and-deutsche-bank-helped-hedge-funds-skirt-6-billion-in-taxes/2014/07/21/d732664a-10e5-11e4-8936-26932bcfd6ed_story.html?utm_term=.9f4a75361b4b https://www.washingtonpost.com/business/economy/senate-repor... [2] https://www.bloomberg.com/news/articles/2013-07-03/the-irs-challenges-a-hedge-fund-tax-trick https://www.bloomberg.com/news/articles/2013-07-03/the-irs-c... [3] https://www.nytimes.com/2015/07/09/business/dealbook/irs-cracks-down-on-hedge-fund-tax-strategy.html https://www.nytimes.com/2015/07/09/business/dealbook/irs-cra...
- whatok 8y ago
  I had a feeling that was what they were referring to but I don't see why someone operating under current (at the time) tax law should go to jail.

How have "quantitative hedge funds" not paid their "fair share" of taxes? Are you suggesting that they evade taxes?

by whatok 8y ago

How have "quantitative hedge funds" not paid their "fair share" of taxes? Are you suggesting that they evade taxes?

heavenlyblue 8y ago

Yeah - can we get some evidence or at least a good article about this one?

opportune 8y ago

https://www.thedailybeast.com/trump-moneymans-dollar7-billion-secret-war-with-the-irs https://www.thedailybeast.com/trump-moneymans-dollar7-billio... The IRS’s wording suggests that other funds may have also been improperly using basket options. I’m admittedly not even close to being a tax law expert so I can’t really offer much more analysis I’m pretty sure I was wrong that the taxes were being used as arbitrage, though. The allegedly unpaid taxes seem to be based on payments out of the fund to employees

whatok 8y ago
So they currently have a tax dispute with the IRS over something that was legal at the time and since changed. Why should they be going to jail over that?

JumpCrisscross 8y ago

I think they're referring to basket options. TL; DR It's a non-story for all but financial engineering geeks. "Deutsche Bank and Barclays used the options structure to open accounts for their clients in their own names, creating the illusion that they owned the assets. But in fact, the hedge funds exercised complete control over the assets, executed all the trades and raked in all of the trading profits, according to the report. The hedge funds exercised the options soon after the one-year mark and claimed that the trading profits were eligible for the 20 percent (previously 15 percent) tax rate that applies to long-term capital gains on assets held for at least a year. The report contends that those options were actually short-term trades that should have been taxed at the ordinary income rate of 39 percent, which would otherwise apply to investors in hedge funds engaged in daily trading" [1]. Market makers are taxed differently from other investors. Certain market makers tried to "rent" their low-tax status to hedge funds. All this resulted from a weird 1999 law trying to fix a loophole in some other arcane law [2]. Last I heard, the IRS charged the market makers for the investors' short-term gains [3], and did so retroactively. [1] https://www.washingtonpost.com/business/economy/senate-report-barclays-and-deutsche-bank-helped-hedge-funds-skirt-6-billion-in-taxes/2014/07/21/d732664a-10e5-11e4-8936-26932bcfd6ed_story.html?utm_term=.9f4a75361b4b https://www.washingtonpost.com/business/economy/senate-repor... [2] https://www.bloomberg.com/news/articles/2013-07-03/the-irs-challenges-a-hedge-fund-tax-trick https://www.bloomberg.com/news/articles/2013-07-03/the-irs-c... [3] https://www.nytimes.com/2015/07/09/business/dealbook/irs-cracks-down-on-hedge-fund-tax-strategy.html https://www.nytimes.com/2015/07/09/business/dealbook/irs-cra...

whatok 8y ago
I had a feeling that was what they were referring to but I don't see why someone operating under current (at the time) tax law should go to jail.